Meanwhile, the ongoing energy crisis triggered by Russia’s war against Ukraine has also increased the likelihood of a European recession as the continent struggles with high gas prices ahead of winter.
“Fears of higher US interest rates triggering a potential recession and Europe’s ongoing energy crisis are likely to dominate global stock market sentiment this week,” Bassanese said.
Two key data points due later this week are the Reserve Bank’s monthly interest rate decision on Tuesday and GDP figures the following day. Both are expected to provide a small boost to the local stock market.
Markets have generally factored in a 50 basis point increase, while our economic growth figures for the June quarter are expected to be in positive territory despite inflationary pressures.
However, a move higher or lower than the expected 50 basis point rise is likely to unsettle the markets. “If it is less, [the ASX] will meet away. If there are more, the market will fall,” Liu said.
Economists expect Australia’s economic growth rate to be around 1 percent in the three months between June and August.
“The focus will be on how aggressive the RBA sounds,” said AMP Capital Chief Economist Shane Oliver. “They may tone down the hawkish tone a bit and leave open the possibility that they slow down the pace of tightening in the coming months. Therefore, much attention will be paid to the post-meeting statement and also to a speech from [RBA Governor] Lowes on Thursday.
If the RBA raises rates, it will be the fourth hike in as many months with the aim of stifling inflation. “[The RBA] it wants to avoid the situation in the US, where rates were kept too low for too long and now strong brakes have to be applied,” Bassanese said.
And while the Australian economy has had a “reasonable” June quarter, the next set of GDP figures will not be so rosy.
“With interest rates rising, consumer confidence has been very depressed. House prices are falling sharply… All of those things point to much weaker growth going forward,” Oliver said.
“You have the combination of rising interest rates and the prospect of slowing economic growth, which is not a good combination for the stock market. It suggests risks of more downsides.”
a bitter september
September is historically a month of notably lower returns for the US and Australian equity markets. The US financial year usually ends in September, and US investors tend to sell their losing stocks to reduce their capital gains tax bill.
This has a ripple effect in Australia. “We tend to get dragged down,” Oliver said. “It’s particularly evident when markets are in a downtrend, as we still are.”
The ongoing geopolitical instability and rising interest rates are likely to further depress earnings for the month.
“When you couple that with concerns about central banks and the recession, the risk of further decline is quite high.”
On the other hand, September could be good news for Apple investors as sales tend to pick up ahead of the holiday season, according to eToro Market Analyst Josh Gilbert. The tech giant is expected to unveil the new iPhone 14 on Wednesday.
“Following last year’s event in September, the stock is up 20 percent through the end of the year, so it’s an event Apple investors should watch this week,” Gilbert said.
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