Australian shares set to rise as Wall Street extends rally

The news: The Australian sharemarket is set for more gains as investors take cues from major US indices where rate-cut hopes for next year have resulted in an extended, broad-based rally.

The numbers: The Dow Jones index was trading 0.56% higher, while the broader S&P 500 was up 0.46%, putting it within touching distance of an all-time high previously hit in January 2022. The tech-heavy Nasdaq added 0.49%. In the local market, ASX 200 futures were trading 39 points or 0.52% higher at 7542 points at 7:00am AEDT on Wednesday.

The context: The extended rally on Wall Street comes after last week's dovish policy pivot from the Federal Reserve, which signaled it had reached the end of its tightening cycle and opened the door to rate cuts in the coming year. Markets are pricing in a 67.5% likelihood that the Fed will implement a 25 basis point rate cut as soon as March, according to CME's FedWatch tool, despite pushback from Fed officials. Traders are awaiting the US Personal Consumption Expenditures report on Friday, which will provide further insight on income growth, consumer spending, and inflation.

What they said: "The market is probably being a little too aggressive with rate cut expectations," Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut told Reuters. "You have to be careful what you wish for; two rate cuts next year probably make sense. But four and five rate cuts means there’s something wrong with the economy."