AU Evening Wrap | ASX Surpasses 8200 as Fed Cuts Rates; BHP Rallies on Morgan Stanley Buy Rating

Australia's job market grew significantly in August, with employment rising by 47,500, exceeding expectations of 26,400. This marks the fifth consecutive month of strong labor force growth. The participation rate held steady at a record high of 67.1%, and the unemployment rate remained at 4.2%. Despite a cooling broader economy, local businesses continue to fill high levels of vacancies, especially for skilled labor. This robust job market supports consumer inflation and allows the Reserve Bank of Australia to maintain higher interest rates.

The Federal Reserve cut interest rates by half a percentage point, marking its first reduction since 2020 and signaling a new phase in its fight against inflation. With 11 of 12 Fed voters backing the cut, the benchmark federal-funds rate now ranges between 4.75% and 5%. The move, larger than analysts expected, aims to ease borrowing costs and prevent past rate hikes from weakening the labor market. Fed Chair Jerome Powell emphasized the commitment to maintaining economic strength. Despite immediate stock market gains, indices ended the day lower. The rate cut provides relief for consumers and small businesses with variable-rate debt, while long-term borrowing costs have already been declining. The Fed plans further cuts, aiming for a soft landing that reduces inflation without triggering a recession.

The ASX rallied as investors reinvested in mining stocks, driven by a rebound in iron ore prices to $US92.35 per tonne in Singapore. BHP surged 2.6% to $40.19, boosted by a Morgan Stanley buy rating, while Rio Tinto rose 3.5% to $113.61 and Fortescue gained 1.2% to $17.64. However, the defensive industrials sector fell by 1%, with ALS leading the decline, dropping 8.6% to $13.67 due to volume headwinds in its minerals business.