U.S. stock markets experienced a decline as uncertainty surrounding the Federal Reserve's interest rate decisions grew. Comments from Fed Chair Jerome Powell, along with strong housing sales data, have led to doubts about a potential rate cut in October. The Australian Securities Exchange (ASX) is expected to follow suit, with traders reassessing local interest rate expectations. Currently, the likelihood of a rate cut by the Reserve Bank of Australia (RBA) in November stands at about 50-50.

Recent data revealed that annual inflation in Australia rose to 3%, which is at the upper limit of the RBA's target range. This increase has caused traders to reduce their bets on a rate cut by November. Belinda Allen, the new head of Australian economics at CBA, stated that the RBA will likely find it easier to maintain current rates in the upcoming meeting, but will face a more challenging decision in November. "The RBA are likely to find themselves in a tougher position than recent meetings," she said. "There is real tension building in the data flow."

Allen noted that while the August Consumer Price Index (CPI) indicates potential upward pressure on inflation, there are also signs of a slowdown in employment and wage growth. RBA Chief Economist Sarah Hunter mentioned earlier this week that the Australian economy seems to be on an upswing, albeit a moderate one. Despite this, the RBA considers current interest rates to be restrictive, suggesting there may still be room for one or two more cuts, especially given the stagnation in job growth over the winter months.

In the U.S., the S&P 500 and Nasdaq both fell by 0.3%. The decline was influenced by ongoing uncertainty regarding the pace and extent of interest rate cuts by the Federal Reserve and other central banks. Although there was limited economic news to drive speculation, a significant increase in U.S. home sales—up more than 20% in August—caught traders' attention. Taylor Nugent, a senior markets economist, remarked, "Data was second tier, but new U.S. house sales did leap more than 20% in August, well above expectations."

This surge in home sales contrasts with a generally weaker housing market, as many homeowners are reluctant to sell due to low fixed mortgage rates. In Australia, the stronger-than-expected inflation data has led to a reassessment of the RBA's rate cut expectations, with most economists now predicting little chance of a cut in the immediate future. Ahead of the local market opening, ASX SPI 200 futures were down 0.5% to 8,769.