The Australian sharemarket showed positive momentum at midday following a significant interest rate cut by the Federal Reserve, aimed at invigorating the U.S. economy and averting a recession.
The S&P/ASX 200 reached an early peak of 8,186.9 before settling at 8,163.7 by 12:22 PM AEST, reflecting a modest gain of 0.2%. Five of the eleven sectors advanced, with utilities and mining leading the way, while industrials and healthcare faced declines.
In a decisive move, the Fed reduced its key interest rate by 50 basis points, now setting it between 4.75% and 5%. This unexpected cut jolted financial and commodity markets, intensifying calls for the Reserve Bank of Australia to consider earlier rate relief.
The Fed’s announcement followed the release of Australian employment data showing the unemployment rate held steady at 4.2% in August, with the addition of 47,500 jobs, reinforcing expectations for the Reserve Bank to maintain current interest rates in the near term.
Boosted by the Fed’s cut, major Australian mining companies saw notable gains, with BHP up 1.5%, Rio Tinto increasing by 2.1%, and Fortescue rising 1%.
Other significant gainers included Origin Energy (up 2.1%) and Telix Pharmaceuticals (up 2.6%). Orica also experienced a 1.7% rise following a favorable trading update.
The financial sector also advanced, with Commonwealth Bank increasing by 0.7%, Westpac by 1.3%, and ANZ by 1.4%, though NAB dipped slightly by 0.1%.
Conversely, the industrial sector faced challenges, highlighted by a 10.9% drop for ALS after a profit warning, and a 4% decline for Computershare. Medical device maker Resmed fell by 3.7%, rounding out the largest losses among major stocks.
In commodity markets, spot gold remained stable at $2,558.91 per ounce, Brent crude fell 1% to $72.93 per barrel, and iron ore declined by 1.5% to $90.80 per tonne.
On Wall Street overnight, the initial optimism following the Fed’s announcement faded during Chairman Jerome Powell’s press conference, leading to a 0.3% drop in the S&P 500. The Dow Jones lost 103 points, while the Nasdaq composite also fell 0.3%.
The Fed’s decision marks a pivotal shift in monetary policy, aimed at alleviating economic pressures from previous high rates. While this cut provides relief for borrowers and can stimulate investment, concerns remain about potential inflationary pressures.
Looking ahead, the Fed projects further cuts, potentially reducing rates by another half percentage point by the end of the year, with additional cuts anticipated in 2025.
As global central banks, including the Bank of Japan and the Bank of England, prepare for policy meetings this week, their communications will likely influence market sentiments moving forward.
