The Australian sharemarket is poised for a cautious start to the week, with S&P/ASX 200 Index futures suggesting a softer opening. Investors are bracing for fresh evidence of a cooling domestic economy and scrutinising upcoming central bank speeches for interest rate direction. This local defensiveness contrasts with Wall Street, which saw record highs Friday on AI optimism and robust earnings. Global geopolitical tensions, particularly stop-start US-Tehran ceasefire efforts over the Strait of Hormuz, will also influence sentiment, impacting oil prices which dropped 19 per cent in May.
Locally, the Reserve Bank of Australia (RBA) will take centre stage with three public appearances this week, following softer-than-expected inflation and jobs reports. RBA board member Ian Harper speaks Tuesday, followed by Governor Michele Bullock and Assistant Governor Chris Kent before the Senate economics committee Thursday. Andrew Hauser concludes the week with a discussion Friday. Markets keenly await RBA insights into the interest rate outlook; NAB’s head of FX strategy Ray Attrill noted recent labour market data provides “space to sit back,” suggesting a potential pause in rate hikes.
Wednesday’s release of first-quarter gross domestic product (GDP) data will be a focal point, with growth expected to slow to 0.5 per cent over the three months to March 30. Westpac senior economist Pat Bustamante warned the full economic fallout from the Middle East conflict is yet to be reflected, predicting damage to ramp up rapidly. He highlighted the “possibility of a quarterly contraction,” the first since the global financial crisis. Bank of America’s Nick Stenner added a shift from inflation concerns to a stalling economy within the next year presents a danger not currently priced in by markets.
In the United States, investors will focus on an important labour market update Friday, assessing whether simmering inflation and further rate increases could derail Wall Street’s rally. Markets currently imply a 56 per cent chance the Federal Reserve will lift rates late this year. If geopolitical hopes surrounding Iran’s conflict do not materialise, analysts anticipate the Australian dollar and sharemarket may relinquish some recent gains.
