The global financial landscape witnessed a mix of significant corporate news and shifting economic sentiments, culminating in a week of anticipation for key market data. Australian mining giant BHP's efforts to acquire its smaller rival, Anglo American, have concluded without a deal, marking another chapter in the companies' on-again, off-again merger discussions.
BHP's Acquisition Attempts End Without Agreement
BHP confirmed that its "preliminary discussions" with Anglo American have ceased, and it is no longer pursuing a combination of the two entities. This decision follows renewed reports of BHP's interest in the UK-listed, South African-origin miner. Anglo American, valued at approximately $42 billion, had previously agreed to a $57 billion merger with Canadian giant Teck in September. BHP, with a capitalization of $132 billion, had made an $80 billion bid for Anglo last year, which was abandoned due to strong opposition from Anglo's board. A successful merger would have created the world's largest copper miner.
Global Markets Respond to Fed Rate Cut Prospects
Wall Street closed the week with a strong rally, propelled by renewed optimism that the US Federal Reserve might implement rate cuts as early as December. New York Fed President John Williams, a voting member of the Federal Open Market Committee, fueled this sentiment by suggesting that the central bank could cut rates "in the near term" without jeopardizing inflation targets. This pushed market expectations for a December rate cut to nearly 72%, a significant jump from the previous session's 39.1%.
In contrast, European markets closed lower, preceding Williams' dovish remarks. Concerns over stretched tech valuations and sliding defense shares (following progress towards a potential Russia-Ukraine peace deal) contributed to their decline. The US dollar index dipped, and gold's decline steadied amidst the rate cut speculation.
Australian Market Outlook and Key Economic Data
Following Wall Street's lead, the Australian Securities Exchange (ASX) is poised for a positive start, with futures trading indicating a 1.1% gain. This comes after the ASX clawed back some of Friday's 1.5% tumble.
Crucial Week for Australian Economy
The upcoming week is crucial for Australia's economic observers. The Reserve Bank of Australia (RBA) will introduce its new monthly Consumer Price Index (CPI) on Wednesday, replacing the previous interim measure. While the quarterly CPI will remain the primary determinant for RBA decisions, the monthly release will provide more frequent insights into inflation. Westpac forecasts a 0.1% rise in October, with the annual pace expected to climb from 3.5% to 3.9%. Factors contributing to this include a smaller fall in electricity prices, stronger dwelling gains, a reduced decline in rents, and a positive increase in holiday travel and accommodation.
Additionally, the Australian Bureau of Statistics (ABS) will release preliminary GDP data for the third quarter. Construction work done (Wednesday) is anticipated to have declined after a mining-related spike in the previous quarter, coupled with a recent downgrade in public infrastructure spending. However, Q3 capital expenditure (Thursday) is projected to remain solid, driven by robust performance in the IT and energy sectors. Private sector credit (Friday) is expected to maintain its steady growth of around 0.6% in October, largely supported by home loans.
International Economic Calendar Highlights
Beyond Australia, several key international economic indicators are on the horizon:
- US: Retail sales (Sep), ADP employment (weekly), Producer prices (Sep), Consumer confidence (Nov) on Tuesday. Durable goods orders (Sep) on Wednesday. Note: US markets will be closed for Thanksgiving Day on Thursday.
- New Zealand: RBNZ rates decision on Wednesday, with a 25bp cut expected, lowering the official rate to 2.25%.
- UK: Government budget on Wednesday.
Commodity Market Volatility
Commodity markets experienced notable shifts. Brent crude fell 1.4% to $US62.48/barrel, and US West Texas Intermediate (WTI) dropped 1.6% to $US58.06/barrel, as traders considered the potential for increased global supplies following a possible Russia/Ukraine peace deal. A drop below $US60/barrel for WTI could challenge US shale producers.
A significant event impacting the ASX is the collapse of lithium prices out of China. News that mega-battery business CATL may restart its largest mine led to lithium carbonate on the Guangzhou Futures Exchange closing down 9%, hitting its lower limit and triggering a trading halt. This development signals a potentially challenging day for Australian lithium miners.
