Josh Gilbert, Market Analyst at eToro, shares his three things to watch in Australia in the coming days.
Fed rate decision
On Thursday US time, the US Fed will be passing down its latest interest rate decision. Unsurprisingly, a cut does not seem to be on the cards. In fact, the CME FedWatch tool has reduced the likelihood of a cut to just 3%. The Fed isn't one to surprise the market; therefore, the focus instead shifts to the commentary from Jerome Powell and the board.
US-China negotiations may provide some optimism that volatility around tariffs could ease, but the reality is that this tentative agreement, even if realised, would essentially bring the US back to the position it started in with China. Elsewhere, the turbulence continues.
So far, Jerome Powell has walked a tightrope when it comes to monetary policy. However, he will likely face more pressing questions as to what the Fed needs to see in order to lower rates, especially after last week’s weaker-than-expected inflation data. While Powell doesn’t give many clues on future Fed decisions, and does a good job not to tip his hand, investors crave certainty and will be looking for some answers during next week’s Fed press conference.
ASX hitting new highs
Last week, we saw the ASX hit a new all-time high, due to improving investor sentiment, largely fueled by the belief that talks between the US and China could ease trade tensions.
This is the latest shot of optimism enjoyed in local markets right now. In fact, the ASX has performed strongly over the past year, up 10%, even despite FY25 earnings growth looking set to come in at a pretty lacklustre, -1%. Of course, markets look forward, and expectations for FY26 are stronger at 6%, despite estimates edging lower in recent months.
The banking sector has also been a boon for the local market, with CBA recently becoming the first ASX company to top AU$300 billion in value.
The prospect of even lower cash rates has also aided the market over the past year. So far this year, we’ve seen the cash rate cut from 4.35% to 3.85% with an additional 75bps of easing being priced into markets for the rest of the calendar year. This is likely increasing the market's conviction for stronger earnings heading into future fiscal years.
Although the risks of a global recession have increased, non-US central banks seem set to continue to lower interest rates to mitigate any negative impacts from trade and consumer spending. Meanwhile, I believe the US economy will remain resilient, as we are also coming off a strong earnings season in the US, and the AI sector continues to show remarkable momentum at this time. Company earnings are solid, and valuations remain reasonable. Although we need something concrete from a trade perspective to keep pushing higher, I still perceive a greater risk in being out of the markets than in them.
US/China trade agreement
The latest US-China trade deal is a cautious step forward – or a return to square one – but the market’s muted reaction so far highlights lingering scepticism from investors. While commitments like lifting rare earth export restrictions signal progress, the significant tariff disparity - 55% for the US versus 10% for China - raises questions about the long-term sustainability of this trade deal.
As we’ve seen, Donald Trump's willingness to negotiate has helped boost investor sentiment over the last month, and the prevailing view is that the worst of the tariff turmoil may now be behind us. Despite the recent boost in sentiment, investors remain understandably cautious due to past negotiation setbacks and legal challenges related to tariffs. The ongoing uncertainty surrounding the long-term impact of Trump's tariffs, both globally and locally, further complicates investors’ perception of this deal.
Investors may begin to breathe a sigh of relief once more details are confirmed, and an enforceable agreement will likely be needed before markets show sustained optimism. Currently, caution is the priority for investors, but any clarity from a trade perspective will help to support risk assets.