Weak US and European markets coupled with a drop in oil will drive the ASX lower on Monday.

July 23, 2017

The Australian stock market is expected to fall around 25 points or 0.4 of a per cent when it opens on Monday due a decline in the oil price and weakness in the European and US markets.

CommSec chief economist Craig James says the 2.5 per cent drop in the oil price, due to investors cashing in on the week’s strong gains, will weigh down the energy sector on Monday but overall the ASX is performing well despite last week’s slightly softer results.

“You have these ebbs and flows over time,” he said. 

Looking ahead, the release of the Consumer Price Index figures for the June quarter on Wednesday is data investors should watch out for.

Mr James said he expected to see continued soft inflation figures.

“We’re looking for half of one per cent growth.”

It’s likely the headline inflation rate will be 2.2 per cent and the underlying rate around 1.7 per cent once volatile items, such as petrol prices, are stripped out.

This is edging into the Reserve Bank’s target band, Mr James said. 

“So the Reserve Bank would look at that and say inflation is still not a problem.”

But investors should keep an eye on the results as an increase beyond these figures may indicate inflation is starting to trickle through and coupled with Australia’s strong economic data, it may lead the market to assume the Reserve Bank is about to increase interest rates.

“So that figure on Wednesday certainly does have the potential to move markets,” Mr James said.

A soft reading on inflation will result in the Reserve Bank taking no action and cause the Australian dollar to fall back, but a reading of 0.6 or 0.7 of one per cent growth will show inflation is higher and the economy is doing well.

This could kick the Aussie dollar up even higher, he said.