The sharemarket is set to open lower on Monday after a lurch higher in the oil price on Friday, as investors brace for a huge week of market-moving events, from key inflation data in Australia and a US interest rate decision to several big tech earnings.
Futures for the S&P/ASX 200 Index point to a 43-point drop on Monday morning, or 0.5 per cent, to 8774. It follows another weak session on Wall Street on Friday with the technology-heavy Nasdaq 100 capping its worst two-week drop since April last year as confidence in the artificial intelligence trade continues to falter.
A resurgence in Brent crude to just below $US117 a barrel on Friday – the highest level since the spike at the end of April – did not help investor sentiment. Both the US sharemarket and bonds fell after escalating attacks on Saudi Arabia from Iran-backed Houthi militants raised concerns about both global oil supply and inflation.
“Jitters about AI have been amplified by rising energy prices and the inflationary consequences that implies,” said Barclays global head of economics research Christian Keller in a report to clients.
“Intensifying Houthi attacks on Saudi Arabia, continuing attacks on tankers and uncertainty about the US administration’s path of action after the midterms imply a substantial geopolitical premium on oil prices.”
The latest spike in the oil price comes just days before the third quarter inflation report in Australia and the US Federal Reserve’s latest decision on interest rates, and two weeks before the US midterm general election on November 3.
While the Fed, the world’s most influential central bank, is expected to keep rates on hold after raising borrowing costs in September for the first time since 2023, it has signalled that another increase was likely this year.
Other central banks meeting this week include the Reserve Bank of New Zealand and the Bank of Canada, both of which are expected to raise interest rates to contain inflation. The European Central Bank and the Bank of Japan, meanwhile, are expected to keep rates steady.
In Australia, money markets are still reeling from unexpectedly hawkish comments from the Reserve Bank of Australia deputy governor Andrew Hauser last week, where he fired off a strong warning on inflation that forced a rapid rethink on local rate expectations.
Bond traders are now pricing in a more than 60 per cent chance that the RBA will lift the cash rate by a quarter of a percentage point when it meets on Melbourne Cup day to 4.85 per cent. A number of banks from Goldman Sachs to ANZ, Citi, HSBC and RBC Capital are also expecting the RBA to lift the cash rate next month for the fifth time this year.