Thursday is shaping up to be a huge day for S&P/ASX 200 Index (ASX: XJO) investors.
Yes, yes, I know the Federal budget comes out tonight.
And depending on what is and isn't included, this could have some major implications for ASX 200 shares at market open tomorrow.
With the government expected to up its support for miners in the critical minerals space, this will be one sector to watch.
Now here are two reasons Thursday could see some even bigger moves among ASX 200 stocks.
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What's happening on Thursday?
At market open on Thursday, ASX 200 investors will get some fresh insight into how the Federal Reserve's inflation battle is going in the United States.
The latest consumer price index (CPI) data will be released on Wednesday in the US, overnight Aussie time.
"Analysts anticipate a downward trend in inflation, marking a pivotal moment in the economic landscape," Josh Gilbert, market analyst at eToro said.
With inflation in the world's top economy proving to be unexpectedly sticky, the Fed has been holding the official interest rate at 20-year highs. And markets have been pushing back the timing and pace of any pending interest rate cuts.
According to Gilbert:
The upcoming CPI reading carries significant implications, especially amidst anticipation of a rebound in inflation. While markets initially eyed July for potential rate cuts, the outcome of this week's data could alter this trajectory.
Gilbert noted that if US inflation does ease in April, this could put "rate cuts back on the agenda". This would also likely offer some healthy tailwinds for the ASX 200 on Thursday.
Indeed, Fundstrat Global's Tom Lee is recommending clients buy stocks ahead of the CPI data release.
According to Lee (quoted by The Australian Financial Review):
We think an 'in-line' April CPI will cause the market's expected number of Fed cuts (by year-end 2024) to rise from about 1.8 towards 2.5 cuts or more. The rationale, in our view, is that this April CPI will highlight the possibility that auto insurance's disproportionate impact on CPI is eroding.
The key in April CPI remains auto insurance. This rose +2.58 per cent in March and was the singular largest contributor to the 'hot' March reading (miss). It is not entirely clear if April will show an improvement. But we think each month that passes, this probability rises that the surge in auto insurance is ebbing.
What else could materially move the ASX 200 on Thursday?
The second thing that could either boost or pressure the ASX 200 on Thursday is the latest Aussie unemployment data.
This will largely be a case of good news for workers is bad news for the stock market. If the labour market data is robust this will make the RBA's own inflation battle trickier and push out the likelihood of any near-term interest rate cuts in Australia.
Gilbert believes, however, that unemployment has likely ticked higher:
This past Wednesday, Seek released labour market data, revealing that the number of job ads plunged 4.7% in April to the lowest level since January 2021. It's likely that we will see a climbing unemployment figure that echoes this movement.
With Treasurer Jim Chalmers confirming that jobseeker payments won't increase in the new Federal budget (due out tonight), Gilbert cautioned, "There is plenty of concern, especially with an increase in the rate of business insolvencies further tightening the jobs market this year."
Gilbert added:
While much of this is usually good news when trying to fight inflation, the issue is proving sticky and interest rate cuts still seem a long way off if there are no meaningful concessions for hard-done-by workers in the budget.
The ASX 200 is down 0.3% in afternoon trade today, at 7,725.4 points.
