The Australian share market experienced another rough day on Friday, December 2024, closing at its lowest level since September amid continuing fallout from the U.S. Federal Reserve's recent decisions on interest rates. The S&P/ASX 200 index dropped 1.2%, ending the trading day at 8,067.7 points. This decline marks almost a 3% loss for the week, leading analysts and investors alike to wonder about the future of the Australian economy.
The retreat of the ASX is closely tied to the U.S. Federal Reserve's decision to scale back its expected interest rate cuts from three down to two for 2025. Federal Reserve chairman Jerome Powell's cautionary statements about inflation risks spooked investors globally, causing markets to react decisively. The sentiment was palpable across the Australian market, which mirrored Wall Street's behavior, even surpassing it with additional losses.
Notably, Commonwealth Bank (CBA), which had been one of the top performers for much of the year, saw its stock price fall by 3.6%, closing at $150.26. This substantial drop was part of broader losses within the banking sector, where ANZ and NAB also faced declines of over 2%. Similar trends were observed across the consumer discretionary sector, indicating widespread bearish trading conditions.
The gold sector did not offer refuge from the decline, as the rising U.S. dollar forced gold prices lower, impacting Australian gold miners significantly. Bellevue Gold saw its shares tumble by 5.6%, highlighting how interconnected global economic factors can affect local markets.
On the flipped side, some stocks managed to defy the downward trend. HMC Capital shares rose 3.2% as investors see potential from its earlier sell-off, relating to the lackluster float of DigiCo. Similarly, Integral Diagnostics experienced gains of 1%, buoyed by the completion of its merger with Capitol Health.
Friday's trading session wasn't without technical challenges. The ASX experienced delays due to issues with its CHESS batch processing systems which disrupted payment settlements for trades made earlier in the week. The ASX notified regulators about these delays, exacerbated by the upcoming holiday trading schedule, where trading will be significantly reduced, raising concerns about liquidity and market volatility.
Looking forward, the upcoming holiday trading period is anticipated to be thin, with most analysts predicting cautious trading as December continues. Some key indicators will be released, including Australian inflation and retail sales figures. The Reserve Bank of Australia's upcoming meeting minutes and the Federal Reserve’s post-meeting analysis will also be closely watched as traders assess the impact on investment strategies and market confidence.
Shane Oliver, chief economist at AMP, noted, "This is sure to be a week of very thin trade... the changes to the RBA board members determining rates have turned out to be minor..." He suggested local investors might need to prepare for continued volatility as the influence of U.S. monetary policy manifests domestically.
With the ASX facing the potential for the first major correction since earlier this year, many investors are wondering if the so-called ‘Santa rally’—a historic uptick typically seen just before year-end—will materialize, or if uncertainty will dominate the short-term outlook. Without clear signs of consumer confidence or market stabilization, it remains to be seen how traders will react as the new year approaches.
