The ASX 200 Index experienced a significant reversal this week, despite other top global stock indices, such as the Nasdaq 100 and S&P 500, surging to their all-time highs. It plunged to a low of $8,890, down from this month’s high of $9,113.
ASX 200 Index plunged after Australia’s inflation data
One main reason why the blue-chip Australian index crashed this week is that the country’s statistics agency published strong consumer inflation report on Wednesday.
The report showed that the headline Consumer Price Index (CPI) rose from 2.1% in Q2 to 3.2% in the third quarter. This increase was slightly higher than the media estimate of 3.1%.
The data revealed that the quarterly inflation rose from 0.7% to 1.3%, also higher than the median estimate of 1.1%.
More data showed that the trimmed and weighted mean inflation figures rose to 3.0% and 2.8% during the quarter.
Australia’s inflation is slowly getting worse as it jumped from 3.1% in August to 3.5% in September. It is, therefore, moving further away from the Reserve Bank of Australia’s target of 2.0%.
The soaring inflation also explains why the bond market is under pressure. Data shows that the ten-year government bond yield jumped to 4.32%, its highest level since October 10. It has bounced sharply from this month’s low of 4.08%.
The five-year yield rose to 3.8% from this month’s low of 3.50%, while the 30-year moved closer to the psychological point at 5%.
These numbers mean that the Reserve Bank of Australia, which meets next week, will leave interest rates unchanged as it did in the last meeting. Some analysts speculate that the rising bond yields are signs that the bank may buck the trend and hike interest rates.
Trump-Xi meeting and key bank earnings
The next important catalyst for the ASX 200 Index is the ongoing Trump and Xi meeting. They are deliberating on trade, with analysts expecting a deal to happen soon. Besides, China has already started buying US soybeans as a sign of goodwill.
A deal between the two countries would be bullish for Australian stocks. That’s because of the vast amount of goods that are traded between Australia and China.
The next key ASX 200 news will be next week’s results by Westpac and National Australia Bank (NAB). Westpac will publish its results on November 3, while NAB will do the same on November 6.
ASX 200 Index technical analysis
The daily timeframe chart shows that the ASX 200 Index has pulled back in the past few days. It moved from a record high of $9,115 to the current $8,8877.
This retreat happened after the index formed a double-top pattern whose neckline was at $8,772. A double-top is one of the most bearish patterns in technical analysis.
Therefore, the most likely scenario is where the index retreats and hits the neckline at $8,722. A move below that level will point to further downside, while a rebound above the double-top level will point to more gains towards $9.500.
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