It's shaping up to be a big week for S&P/ASX 200 Index (ASX: XJO) investors.
The benchmark Aussie index finished up 2.0% last week, and we could be in for another strong run higher.
Indeed, in late morning trade today, the index of top 200 listed Australian companies is up 0.2%. That puts it in new record high territory at 8,118.6 points, if the index can hold these gains through close.
If you've got some money invested in the United States stock markets you'll have done even better recently. The S&P 500 Index (SP: .INX) gained 3.0% last week, while the tech-heavy Nasdaq Composite Index (NASDAQ: .IXIC) ended the week up 4.7%.
One of the biggest unknowns for ASX 200 investors this week is what to expect from the United States Federal Reserve's interest rate decision on Wednesday (overnight Aussie time).
With inflation in the US coming down faster than it is here in Australia and the US economy showing signs of cooling, consensus expectations are almost unanimous that the Fed will make its first rate cut announcement this week.
That will finally see rates in the world's top economy come down from the current 5.25% to 5.50% range.
The big question now is whether the central bank will opt to cut rates by 0.25% or go big with a full 0.50% reduction. While markets are fickle, a larger cut would likely offer another leg up for the ASX 200 on Thursday.
For a better idea of what we might expect, we turn to the experts.
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Will ASX 200 investors see the Fed cut interest rates by 0.50%?
The market is almost evenly split as to whether we'll see a 0.25% or a 0.50% cut.
According to Priya Misra, portfolio manager at JPMorgan Asset Management (quoted by Bloomberg), "The best case scenario for stocks: OK economy, lower rates. Going 50 is good news. It tells you that the Fed doesn't want to be behind the curve."
JPMorgan Chase & Co's Michael Feroli also believes global and ASX 200 investors should see a 0.50% Fed rate cut this week.
"We believe what the Fed should do next week is clear: recalibrate the policy rate 50 basis points lower to adjust for the shifting balance of risks," Feroli said.
Evercore ISI concurs.
According to the investment bank (courtesy of The Australian Financial Review):
We reaffirm that we see a real shot of a Fed 50 basis point cut in September.
While we carefully assess that we still do not have the evidence to go clearly odds-on, our gut instinct is it may well be heading that way, and we are alert to unfolding dynamics that could move 50bp more clearly odds-on in the period ahead.
But not everyone is on board in expecting ASX 200 investors will see an outsized Fed cut this week.
TD Securities' Andrew Hencic said:
Between this week's CPI report showing unexpected strength in core consumer prices, the upside surprise in the producer price index, and a labour market that continues to steadily add jobs, there is enough strength to suggest aggressively easing monetary policy is not yet warranted.
Our view remains that a 25 basis-point cut … is the most likely outcome, with two more cuts coming by year-end.
Bank of America added (quoted by the AFR), "Global monetary policy convergence is set to begin with the Fed next week. We expect a 25bp cut and see a 50bp move as unwarranted."
And Santander's Stephen Stanley sounded confident that global markets and the ASX 200 should only price in a 0.25% Fed interest rate reduction this week.
According to Stanley:
The firmer-than-expected core CPI should have clinched a 25 basis point rate cut in the minds of financial market participants, but the dovish lean of many traders has been hard to extinguish. I am highly confident that the FOMC will opt for the smaller cut this week.
And, in case you're wondering, I think Stanley has this one right.
Stay tuned!
