Australia's share market has followed a subdued lead from Wall Street, closing down as investors took stock after yesterday's strong rally.
The benchmark ASX 200 index ended down 0.7 per cent at 7,301, while the broader All Ordinaries was off by the same percentage to finish the week at 7,504 points.
Real estate, education and energy stocks suffered the biggest falls, while gains for health care, technology and non-discretionary retail limited the overall market losses.
The top-five falls were Corporate Travel Management (-5.9 per cent), IPH (-5.2 per cent), Charter Hall (-5.1 per cent), Coronado Global Resources (-4.3 per cent) and Goodman Group (-4.1 per cent).
The best gains were dominated by gold miners, such as St Barbara (+10.4 per cent), Capricorn Metals (+8.1 per cent), Silver Lake Resources (+7 per cent) and Ramelius Resources (+4.8 per cent), as the price of the precious metal jumped above $US1,800 an ounce overnight before easing back just below that level.
Smartgroup Corporation (+6.4 per cent) also made the top-five gains on the ASX 200 index.
Gas producer Santos was down 3.8 per cent to $7.15 amid a general fall for energy companies, but was also not helped by a Federal Court decision to reject its appeal against a decision that overturned approvals for a major offshore gas project in the Tiwi Islands off northern Australia.
Overall, 109 stocks out of the top 200 fell, versus 84 that rose.
Rate rise tipped for Tuesday
The Commonwealth Bank is sticking with its forecast for a 0.25 of a percentage point rate rise when the Reserve Bank meets for the last time this year next Tuesday.
That would take the cash rate target to 3.1 per cent, 3 percentage points higher than where it was before the first rate hike in early May.
CBA said it could not see any chance of a larger rate hike, given this week's release of October's monthly inflation figures, which were a bit lower than expected.
However, the bank's head of Australian economics Gareth Aird said there was a slim, 20 per cent, chance that the RBA could choose to pause and keep its benchmark rate at 2.85 per cent.
"We expect that at the December board meeting the discussion will be between raising the cash rate by 25 basis points or leaving policy on hold," he noted.
"We do not anticipate that the board will discuss the case to raise the cash rate by 50 basis points."
Market pricing currently roughly matches CBA's forecast, with around a 75 per cent probability of a 0.25 percentage point rate hike, with the RBA staying on hold as the other prospect.
Mr Aird said he expected the bank to match another rate rise with a subtle change in wording to the RBA governor's statement, from the board "expecting" to raise rates further at future meetings to it being "likely" or "willing" to, signalling the possible end of Australia's rate rise cycle.
"The RBA is still flying blind to a degree given the last few rate hikes have not yet hit home-borrowers from a cash flow perspective," he wrote.
"At CBA there is on average a three-month lag between RBA rate hikes and when a borrower on a minimum mortgage repayment schedule experiences an increase in their mortgage payment.
"There is also a very big expiry of fixed rate home loans over the next year which means monetary policy is operating with a greater than usual lag."
However, Westpac chief economist Bill Evans still believes the RBA must raise rates by 0.25 of a percentage point in both December and when it next meets in February to quash continued inflationary pressures.
"The policy of least regret — which appears to be a clear strategy in other jurisdictions, whereby the choice of short-term weakness over long-term embedded inflation should also be embraced by the RBA — that would certainly not include pausing in December or February," he said.
Building sector warns on rate rises
One sector that thinks interest rates are already high enough is construction.
Lending figures for October released today by the Australian Bureau of Statistics confirmed once again that households are declining to take on more debt while interest rates continue to climb.
"The number of loans for the construction or purchase of new homes fell further in October, down by 0.9 per cent, to its lowest level in over three years," noted Housing Industry Association chief economist Tim Reardon.
"The total value of housing loans issued in October declined by a further 2.7 per cent, leaving them 14.6 per cent lower than in the same quarter last year.
"The declines were seen in all market segments, with lending to first home buyers, owner-occupiers and investors continuing to fall in October.
"Lending to owner-occupiers fell to its lowest level in over two years."
However, Judo Bank economic adviser Warren Hogan said the scale of the decline mainly reflected the size of the boom.
"New mortgage lending is 23 per cent off the early '22 highs at $25.8 billion in October," he tweeted.
"Big falls consistent with property market slowdown.
"Important to remember that new mortgages are still 35 per cent higher than pre-COVID in October and lending remains 14 per cent above the previous peak in 2017."
When bad news is good news
Bad news for the US and global economy was again somewhat good news for share prices, as investors digested signals from data overnight that growth and price pressures are slowing.
A key US manufacturing index fell for the first time since May 2020, with indications around producer price levels declining even more strongly.
Data on US unemployment claims also showed that laid-off workers appeared to be finding it harder to get back into work.
Both are indications that the Federal Reserve's rapid rate rises are acting to take some steam out of what was an over-heated US economy.
"At NAB we combine prices paid and supplier deliveries into what we call a 'Fed Pressure Index' which is now the lowest since February 2017," noted NAB's head of market economics Tapas Strickland.
Investors saw data showing easing inflation supporting the Fed chair's indication that rate hikes could slow.
In the 12 months through October, the personal consumption expenditures (PCE) price index increased 6.0 per cent after advancing 6.3 per cent in September, although still well above the Fed's 2 per cent target for consumer price increases.
Mr Strickland also pointed to a "positive development" in China's COVID handling, which may alleviate supply chain concerns arising from the world's biggest manufacturing powerhouse.
"The city of Beijing said it will allow low-risk patients to do home isolation if they choose, instead of going to government quarantine facilities," he observed.
"This should help alleviate some of the acute supply chain issues as well as perhaps citizens no longer being discouraged from going out due to fears of being pinged and being sent to a quarantine facility."
'One big rates trade'
Wall Street has held on to, but not extended, yesterday's large gains, as traders continue to anticipate a slowdown in the US central bank's break-neck rate rises.
The benchmark S&P 500 was basically unchanged at 4,077 points, the Nasdaq likewise fairly steady at 11,482 and the blue chip Dow Jones Industrial Average fell 0.6 of a per cent to 34,397.
The S&P had rallied 3 per cent on Wednesday after Fed chair Jerome Powell's comments on Wednesday that it was time to slow rate hikes, while the Nasdaq had gained more than 4 per cent and the Dow had risen 2 per cent.
With a month left in 2022, the S&P 500 is down about 14 per cent year to date, and the tech-heavy Nasdaq has lost about 27 per cent.
The US dollar also fell to its lowest level since August after Mr Powell's comments.
He also pointed to a protracted economic adjustment to higher borrowing costs and a slow decline in inflation as well as a chronic shortage of workers in the United States.
That saw the Australian dollar hold on to yesterday's 1 cent jump, remaining just above 68 US cents shortly after 5:00pm AEDT.
"We're in a little bit of a limbo after yesterday's huge rally. Investors are still digesting that and waiting on the payrolls data tomorrow," said Garrett Melson, a portfolio strategist at Natixis Investment Managers Solutions.
Friday's jobs report meeting or missing expectations could help stocks as it would give the Fed further support for easing rate hikes.
"All asset classes are one big rates trade," Mr Melson said.
"We're seeing the set-up as favourable for a rally through year end.
"The bias is still bearish. There's still a lot of investors who are under-risked.
"Yesterday was ripping the bandaid off worrying about Powell continuing to be hawkish and the ensuing scramble to get exposure."
Oil volatile ahead of OPEC+
The pan-European STOXX 600 index closed up 0.9 per cent on Thursday, while MSCI's gauge of stocks across the globe also gained 0.9 per cent.
In bonds trading, moderating inflation in October initially pushed US Treasury yields further down following Wednesday's move in response to the prospects of slower rate hikes.
In commodities, oil prices were volatile ahead of the December 4 meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+.
Oil futures gave up some gains as the session wore on, but crude had risen sharply earlier in the session on the chance of further supply cuts by OPEC+ and as easing COVID curbs in China spurred hopes for higher demand from world's top crude importer.
Though sources had said on Wednesday that a policy change from OPEC+ was unlikely, some said a further cut could not be ruled out.
Brent crude futures settled at $US86.88, down 0.1 per cent on the day.
Gold prices rose 2 per cent to climb above a key $US1,800 per ounce pivot, as the dollar weakened.
ABC/Reuters
