The ASX 200 index remained on edge on Tuesday morning after the Reserve Bank of Australia (RBA) delivered its interest rate decision. The index, which tracks the 200 biggest companies in Australia, was trading at A$8,135, down by 3% from its highest level this year.
RBA interest rate decision
The main catalyst for the ASX 200 index was the RBA, which decided to leave interest rates unchanged at the 13-year high of 4.35% for the ninth consecutive meeting.
In her statement, Governor Michele Bullock noted that the bank was aware of the ongoing uncertainty in the global economy. As she has repeatedly said, the bank will likely not cut interest rates this year, a move that will make it the last major central bank to do so.
The RBA wants to be confident that the country’s inflation is a thing of the past. The most recent data showed that Australia’s inflation continued moving downwards in the third quarter.
It dropped from 1.0% in Q2 to 0.2% in Q3 on a year-on-year basis. This translated to a year-on-year retreat from 3.8% to 2.8%, higher than the median estimate of 2.3%.
The closely watched trimmed mean and weighted mean CPI figures dropped to 3.5% and 3.8%, respectively. These numbers meant that inflation was still a big issue in Australia and that the RBA would need to be more patient when cutting.
The ASX 200 index, has, therefore, underperformed its American peers because of the more hawkish central bank. In most periods, stock indices do well when central banks are cutting because they push investors from fixed income to stocks.
US election and the Fed
The next important ASX 200 index news will be the upcoming US election in which Donald Trump and Kamala Harris will face on each other.
A Trump victory would have a big impact on Australia’s and US equities. In his first term, the stock market was characterized by robust performance because of his focus on deregulation and tax cuts.
However, the surge was affected by the COVID-19 pandemic and his trade wars. Australia is often impacted by these trade wars because of the role that China plays in its economy. It is the biggest trading partner, where it sells most of its products.
In the short term, the end of the election will lead to more gains in the equities market regardless of who wins.
The other ‘minor’ ASX 200 news will come from the Federal Reserve, which will deliver its interest rate decision on Wednesday. Analysts expect the bank to cut interest rates by 0.25% in this meeting. A more dovish Fed will likely lead more gains in American and Australian stocks.
The ASX 200 index will also react to the upcoming corporate earnings from some of the top companies in the country.
Westpac Banking Group, Wesfarmers, and ASX published their financial results on Monday, while Fortescue Mining released on Wednesday. Other notable companies that will publish their numbers this week are National Australia Bank (NAB), ANZ Holdings, and Nexgen Energy.
ASX 200 index analysis
ASX 200 chart by TradingView
The daily chart shows that the ASX 200 index has been in a strong uptrend in the past few months. It has formed an ascending trendline and is now at its lower side.
The index has also remained above the 200-day Weighted Moving Average (EMA) and the Ichimoku cloud indicator.
Therefore, the index will likely have a bullish breakout after the American election. If this happens, the next point to watch will be at $8,400. On the other hand, a drop below the key support at A$8,065 will point to more downside, with the next point to watch being at A$8,000.
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