Overseas rates decision to dominate domestic | Australian Markets

When the United States speaks, Australian traders hear.

And they are going to be doing so very intently because the much-anticipated US rates decision is handed down on Thursday.

Federal Reserve chair Jerome Powell has beforehand indicated there shall be no adjustments to the money fee in May, whereas the bank waits for more data on the results of current tariffs.

But what traders are primarily inquisitive about is what comes afterwards, impartial economist Craig James says.

“(The decision) shouldn’t have any great impact, providing the Federal Reserve chair indicates that there is still the continued leaning towards interest rate cuts,” he advised AAP.

“If it is the case that he winds back the guidance on rate cuts, that could see a degree of disappointment in US markets, and that would have implications for Australian investors as well.”

Commonwealth Bank economists are forecasting the US bank to cut rates by a quarter of a proportion level in every of the following 4 decision cycles.

But Mr James stated the Federal Reserve may take a more cautious angle, given the influence of the tariffs growing costs amid a slowing economic system which contracted 0.3 per cent within the March quarter.

“That’s something that investors certainly don’t like because the question is how does policy react to a stagflation situation?” the economist stated.

“Do you increase interest rates to fight inflation, or do you decrease interest rates because the economy is flat or contracting?”

The Bank of England can even hand down its decision on Friday however Australian traders and markets can pay much less consideration than the “main game” within the US.

Back home, the Reserve Bank will announce its rates decision on May 20, with the door “wide open” for one more fee cut, given inflation is below control – rising by 0.7 per cent within the March quarter.

“But in this volatile environment, they’re going to be fairly careful in terms of what they indicate about future movements,” Mr James stated.

Monthly family spending knowledge can even be launched on Tuesday and the economist stated traders would keenly watch as the important thing measure would quickly substitute retail trade knowledge because the Reserve Bank’s indicator on shopper spending.

“Unless it’s significantly away from zero, if it shows a modest rise or modest loss, that will be taken well by investors,” he stated.

The federal election consequence may be a level of market curiosity, with something however a majority authorities on both facet a “worst case”, Mr James stated.

“Markets love certainty. Investors love certainty,” he stated.

“Hung parliaments would be the worst of all worlds because there could be many independents to lobby in terms of getting votes through.”

Meanwhile, traders on Wall Street have taken consolation from sturdy financial knowledge and the potential easing of trade tensions between the US and China, with stocks notching a second straight week of positive factors.

The US economic system added 177,000 jobs in April, exceeding expectations, whereas the unemployment fee held regular at 4.2 per cent.

As a consequence, the Dow Jones Industrial Average rose 564.47 factors, or 1.39 per cent, on Friday to 41,317.43, the S&P 500 gained 82.54 factors, or 1.47 per cent, to 5,686.68 and the Nasdaq Composite gained 266.99 factors, or 1.51 per cent, to 17,977.73.

Australian share futures jumped 32 factors, or 0.38 per cent, to 11,481.

The S&P/ASX200 rose 92.4 factors, or 1.13 per cent, to 8,238, because the broader All Ordinaries gained 90.5 factors, or 1.08 per cent, to 8,456.2.