Core Inflation Drop Has Markets Dreaming of Rate Cuts

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The Australian sharemarket reversed early losses as the S&P/ASX 200 index closed 0.8% higher at 8,349.1 points on Wednesday, defying Wall Street's decline of over 1%, as November's core inflation data showed a decrease to 3.2% from 3.5%, despite headline inflation rising to 2.3%.

The improved inflation figures strengthened market expectations for the Reserve Bank of Australia to cut its interest rate. Markets now price in the probability of a February rate reduction at 68%, an increase from 60%.

Australia's Consumer Price Index (CPI) rose to 2.3% in November, exceeding market expectations and increasing from October's 2.1%. Core inflation improved, dropping to 3.2% from 3.5% the previous month. This was the highest print since August, partly due to the timing of government electricity rebates. Electricity prices fell slower compared to October (-21.5% vs -35.6%), as did Automotive Fuel (-10.2% vs -11.5%).

Materials (+1.61%) stocks finally had something to smile about in 2025, breaking a three-day losing streak to lead the six sectors to finish higher. Financials (+1.27%) also had a positive day, while Technology (-0.82%) stocks were the biggest fallers.

Company News

• Avita Medical (-19.31%) stock fell after it reduced its 2024 revenue forecast from $68-70 million to $64.3 million due to unexpected year-end inventory adjustments by hospital customers in December.

• Magellan Financial (+0.64%) experienced $400 million in fund outflows during December, split evenly between retail and institutional investors, causing total funds under management to drop 1.3% to $38.6 billion. The company expects to pay $600 million in distributions in January.

• Regal Partners (-1.33%) saw its funds under management grow to $18 billion after securing $2.1 billion in new funds throughout 2024, generating $85 million in fees.

• Regis Resources (+5.41%) reported a quarterly increase in gold production to 101,300 ounces in December from 94,500 ounces in the previous quarter. This met expectations, as the company targets annual production of 350,000 to 380,000 ounces for fiscal year 2025.

• West African Resources (+4.03%) said it achieved its 2024 production guidance, with December quarter gold output rising 7% to 51,178 ounces following a planned mill maintenance shutdown. The company's total 2024 production reached 206,622 ounces, while gold sales totalled 199,550 ounces for the year, with fourth-quarter sales of 47,953 ounces at an average price of US$2,690 per ounce.

Wall Street

U.S. markets saw a sharp sell-off on Tuesday, with the Dow Jones falling 0.42%, while the S&P 500 (-1.11%) and the Nasdaq (-1.89%) seeing steeper declines. The downturn was primarily driven by stronger-than-expected economic data, which raised concerns about potential inflation rebounds. The labour department reported an unexpected increase in November job openings, and the services sector showed accelerated activity in December.

The robust economic indicators have shifted market expectations regarding the Federal Reserve's monetary policy, with benchmark 10-year Treasury yields reaching 4.699% - their highest level since April last tear. Traders have adjusted their outlook, now anticipating the Fed's first interest rate cut to come in June rather than earlier in the year, with a 95.2% probability that rates will remain unchanged at the January 29 meeting. This adjustment suggests the Fed may maintain current rates through 2025, reflecting a more cautious approach to monetary policy easing.

Getty Images (+24.12%) and Shutterstock (+14.81%) announced a $3.7 billion merger, retaining the Getty name, with both stocks surging. The deal promises annual cost savings of $150-200 million within three years.

S&P500 Sector Performance

Economic Data

• Australia’s monthly Consumer Price Index (CPI) increased by 2.3% yoy in November 2024, surpassing market forecasts of 2.2% and accelerating from 2.1% in the previous two months.

• Australia’s annual trimmed mean inflation was 3.2% in November, down from 3.5% in October.

• U.S. ISM Services PMI rose to 54.1 in December 2024 from 52.1 in November, above market expectations of 53.3.

• U.S. Imports of goods and services rose 3.4% to $351.6 billion in November 2024, the largest increase since March 2022.

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🌎️ Around The Globe

• Anthropic, the A.I. startup and creator of Claude chatbot, is reportedly in advanced discussions to raise up to $2 billion in funding led by Lightspeed Venture Partners, valuing the company at $60 billion.

• JPMorgan Chase reportedly plans to end its hybrid work model and requires all employees to return to the office full-time. This would expand on its existing policy of requiring managing directors to work five days in the office.

• McDonald's says it will discontinue its specific diversity, equity and inclusion (DEI) initiatives, including supplier diversity requirements and participation in corporate diversity surveys, joining other major U.S. companies in scaling back DEI programs.

• Meta is abandoning its third-party fact-checking program across Facebook, Instagram, and Threads in favour of a community-based approach similar to X's Community Notes system. CEO Mark Zuckerberg justified the change by citing concerns over excessive censorship and errors in the platform's complex content moderation systems.

• Nvidia has unveiled Project Digits, a $3,000 personal AI supercomputer that will launch in May. The compact system features the GB10 Grace Blackwell Superchip and can process AI models with up to 200 billion parameters (or 405 billion when two units are linked). It also includes 128GB of unified memory and up to 4TB of storage.

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*1-year, 3-year and 5-year returns are calculated as of November 30 2024.

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