ASX to hit 8000 as markets bank on Federal Reserve to cut rates

Australia’s share market looks set to breach 8000 this week for the first time, buoyed by speculation that the Federal Reserve in the United States could kick off its rate cutting cycle with a jumbo half a percentage point move. Futures indicate the S&P/ASX 200 Index will jump 51 points at the open, or 0.6 per cent, which would push the benchmark gauge above 8000, after a strong lead from Wall Street that saw the S&P 500 once again reset its record high and the Dow Jones reclaim the 40,000 level.

“There is every chance that the ASX 200 hits 8000 this week – it’s an important psychological level,” said Stephen Miller, markets strategist at GSFM Funds Management.

It’s taken the local bourse just over three years to climb another 1000 points after breaching the 7000 level in April 2021, fueled by governments and central banks pumping stimulus into the global economy after the COVID-19 pandemic.

“A large part of [recent leg higher] appears to be good management on the part of the Fed,” added Mr Miller. “If you look at the data, there is meaningful disinflation and some cooling of the labour market, but it’s not excessive enough to be a harbinger of a recession. So things are looking pretty good. The goldilocks outcome is the scenario that the market is favoring right now.”

Indeed, cooler US inflation data late Thursday helped the local share market finish the week at a record high of 7959.3 points, after jumping 69.7 points on Friday as traders moved to price in a rate cut in the world’s largest economy at the Fed’s September policy meeting.

Producer price data late on Friday in the US also helped the rate cut narrative with economists saying the components of the data that feed into the Fed’s preferred PCE deflator measure coming in significantly lower than expected for June.