AU Weekly Wrap | Australian Stocks Achieve a New Record; RBA Holds Rates Steady

The PCE price index in the US increased 2.2% year-on-year in August 2024, the lowest since February 2021, compared to 2.5% in July and below forecasts of 2.3%. The annual increase in the core PCE price index, the Federal Reserve's preferred gauge, edged higher to 2.7% in August of 2024 from 2.6% in the previous month.

Australia's central bank held interest rates at 4.35% on Tuesday, diverging from global peers like the Federal Reserve who are reducing rates amid controlled inflation. This decision, expected by economists, underscores Australia's ongoing concerns about inflation, contrasting with trends in other countries. The tight job market and increased migration are driving up living costs, including housing and childcare. Meanwhile, rate cuts by other central banks could elevate the Australian dollar, potentially harming export competitiveness during a period marked by high borrowing costs and weak economic growth, exacerbated by a slowdown in China, Australia's main trade partner.

In August, Australia's headline inflation rate dropped back into the Reserve Bank of Australia's target range for the first time since 2021, but experts caution against anticipating a quick reduction in interest rates. The Australian Bureau of Statistics reported that consumer prices increased by 2.7% in the year to August, a decrease from the 3.5% annual rate observed in July. This adjustment aligned with market predictions. Since August 2021, inflation has consistently exceeded the 2% to 3% target range. This spike was initially triggered by a global surge in prices as economies rebounded swiftly from the pandemic-induced slowdowns, propelled by significant governmental monetary and fiscal interventions. A significant factor in the recent decline in inflation rates was the mid-year issuance of electricity bill rebates to households, an initiative by federal and state governments aimed at mitigating escalating living costs.

Gold prices soared to a new record for the sixth consecutive session on Thursday, nearing the $2,700 mark. This surge is influenced by an anticipated increase in physical demand from India and escalating tensions in the Middle East. December delivery of gold climbed by $9.10, reaching $2,693.30 per ounce. The ascent of this precious metal has been consistent following the Federal Reserve's recent decision to lower interest rates by 50 basis points. The reduction in interest rates decreases the cost of holding gold, further fueling its appeal. Additionally, the demand for gold as a safe haven has intensified amid reports that Israel is preparing to invade southern Lebanon in its ongoing conflict with the Hezbollah militia, a move that could potentially involve Iran in the broader conflict. The physical demand for gold is also set to rise due to increased interest from India. Following a significant reduction in import tax on gold, from 15% to 6%, ahead of the nation's wedding and festival season, there is an expected surge in gold purchases for jewelry and gifts.