The ASX 200 Index has come under increased pressure in the past few days. It has plunged from the year-to-date high of $9.113 on October 22 to the current $8,865, its lowest level since October 15. It remains about 25% above the YTD low.
RBA interest rate decision
The ASX 200 Index plunged last week after Australia published the recent third-quarter inflation report that sent shockwaves in the country.
This report revealed that the headline Consumer Price Index (CPI) jumped from 0.7% in Q2 to 1.3% in Q3 on a QoQ basis. This increase translated to an annual rate of 3.2%, higher than the median estimate of 2.1%.
The same report showed that the weighted mean CPI rose from 2.7% to 2.8%, while the trimmed mean figure jumped from 2.7% to 3%. Most notably, the monthly CPI indicator jumped from 3% to 3.5%.
These numbers mean that the country’s inflation is moving from bad to worse. It is also moving further away from the RBA target of 2.0%.
Therefore, the ASX 200 Index will react to the upcoming RBA interest rate decision. Economists polled by Reuters and Bloomberg showed that the RBA will leave interest rates unchanged and potentially point to a rate hike.
The RBA, under Michele Bullock, has been relatively cautious over the years. It has delivered just a few rate cuts as it worried that more cuts would stimulate inflation in the country.
The rising hopes of a hawkish RBA explains why Australia’s bond yields have jumped recently. The ten-year yields have risen in the last five days, reaching a high of 4.33%, its highest level since October 10 and much higher than the October low of 4.09%.
Similarly, the five-year yields rose to 3.8% from a low of 3.5%. It is now hovering at its highest level since October 7. Other yields have continued rising after the inflation report.
The ASX 200 Index will react to some notable Australian economic numbers, like the manufacturing and services PMIs, and exports and imports.
Westpac, Amcor, and NAB earnings
The other notable catalyst for the ASX 200 Index will be the upcoming earnings by some of its biggest constituent companies.
Westpac, the giant bank valued at over $87 billion, will publish its financial results on Monday. These results come as the stock has moved sideways in the past few months. It was trading at $38.75, a few points below the year-to-date hig of $40.
The National Australian Bank (NAB), with a valuation of $87 billion, will release its numbers on Thursday. These banks will likely benefit from the elevated interest rates in the country.
Amcor, a packaging giant worth over $11 billion, will release its numbers on Wednesday this week.
ASX 200 Index technical analysis
The daily timeframe chart shows that the ASX 200 Index has pulled back in the past few days. It has dropped to $8,864 from the year-to-date high of $9,113.
The index has formed a double-top pattern at $9,113 and a neckline at $8,722, its lowest level in September this year.
It has also moved below the 50-day moving average, while the Relative Strength Index (RSI) has moved downwards.
Therefore, the index will likely continue falling as sellers target the neckline at $8.722.
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