ASX Opens November Under Pressure as RBA Rate Decision Looms and AI Sell-Off Tests Global Market Confidence

Australian shares started November on the back foot, with the S&P/ASX 200 closing at 8,856.50 on Monday, 2 November, down 51.60 points or 0.58%. The index opened at 8,908.10, reached an intraday high of 8,908.60 and fell to a low of 8,841.70. Trading volume was approximately 809.5 million shares.

The weakness reflected several competing pressures. Mining stocks remained sensitive to softer industrial commodity prices, while expectations of another RBA rate increase weighed on interest-rate-sensitive businesses. Technology shares also faced pressure following Friday's sharp sell-off on Wall Street, although the broader market showed some resilience in selected defensive and financial stocks.

Westpac Banking Corporation (ASX: WBC) released its FY26 results, reporting statutory net profit of A$6.8bn, down 1% from the previous financial year. Net profit excluding notable items was A$7.0bn, unchanged year on year. Lending grew 5%, deposits increased 6%, and its Common Equity Tier 1 capital ratio remained strong at 12.5%. The bank declared a fully franked final dividend of 77 cents per share. While the result demonstrates resilience in its core banking operations, management expects interest rates to remain elevated into 2027, highlighting the challenges facing household borrowing and credit demand.

KMD Brands (ASX: KMD) also attracted attention after entering an exclusivity agreement with US-based Bluestar Alliance for due diligence and discussions concerning a potential acquisition of all its shares. The arrangement has a long-stop date of 23 December 2026. Although no binding offer has been confirmed, the development introduces a potentially important corporate catalyst for the retailer.

The Australian dollar, bonds and the RBA

The Australian dollar traded around US$0.703, reflecting a relatively resilient currency despite weakness in domestic equities. The immediate focus, however, is Tuesday's RBA meeting.

The cash rate currently stands at 4.60%, following September's 25-basis-point increase. Annual inflation accelerated to 4.3% in September, while trimmed mean inflation increased to 3.6%. Both readings remain above the central bank's 2-3% target.

Expectations of another 25-basis-point increase to 4.85% have strengthened considerably. The decision will be particularly important for banks, property companies, retailers and other businesses sensitive to financing costs. We believe the accompanying policy statement will be just as important as the decision itself, particularly regarding the potential duration of restrictive monetary conditions.

Global markets: China, Asia and Europe

Asian markets delivered a mixed performance as regional participants assessed Friday's technology sell-off and China's latest manufacturing figures. South Korea's Kospi showed relative resilience, while Japan's Nikkei and China's Shanghai Composite faced pressure. Hong Kong's Hang Seng was comparatively stronger.

China's official manufacturing PMI declined to 49.3 in October from 50.1 in September, falling back into contraction territory and missing expectations of 50.0. The deterioration suggests that industrial demand remains uneven despite previous stimulus measures.

A separate private-sector manufacturing survey offered a more encouraging picture, with its October reading at 52.0, indicating continued expansion. The divergence suggests that larger and smaller manufacturers are experiencing different conditions.

For Australia, the distinction matters. A sustained recovery in Chinese industrial demand would support iron ore, copper and other commodity producers, but the latest official figures do not yet provide convincing evidence of a broad-based recovery.

Wall Street: US stocks and the Federal Reserve

Friday's US session was considerably weaker, with technology stocks bearing the brunt of renewed concerns about artificial intelligence expenditure and profitability.

The S&P 500 fell 1.82% to 7,580.07, the Nasdaq Composite declined 2.86% to 25,437.00, and the Dow Jones Industrial Average lost 1.09% to 51,770.31. The Russell 2000 also declined 1.66% to 2,811.84.

Intel plunged 28.6% following disappointing financial guidance and concerns about cash consumption. Nvidia declined 4.2%, while AMD dropped 10.9%, illustrating how quickly weakness in semiconductor stocks can spread across the technology sector.

Amazon's results also intensified concerns about the scale of capital expenditure required to sustain AI infrastructure development. The central question is increasingly whether future earnings and cash flows can justify the enormous investment commitments.

The Federal Reserve recently maintained its policy rate at 3.75-4.00%. US 10-year Treasury yields were around 4.93% in the latest available early-session market snapshot on Monday. Wall Street's next completed session will provide a clearer indication of whether technology valuations are stabilising.

Commodities: gold, oil and industrial metals

Commodity markets remained volatile. Gold traded around US$3,876 an ounce in Monday's early-session snapshot, following a substantial decline that had taken bullion to a one-year low. Higher real yields and changing interest rate expectations have challenged gold's recent strength.

Copper traded around US$6.46 a pound, reflecting concerns about industrial demand and China's manufacturing outlook. Iron ore remained under pressure, creating an additional headwind for Australian diversified miners.

Oil remained elevated, with WTI around US$104 a barrel in the latest early-session snapshot. Geopolitical tensions involving Iran and continued uncertainty around shipping through the Strait of Hormuz remain important supply-side considerations. Reports of diplomatic discussions involving Qatar have nevertheless introduced some hope of easing disruptions.

What to watch next

Tuesday's RBA decision is the immediate catalyst for Australian markets. A further rate increase accompanied by hawkish guidance could intensify pressure on retailers, property stocks and other rate-sensitive sectors. Conversely, a less aggressive policy outlook could provide some relief.

Internationally, we will be watching the next developments in US technology earnings, particularly whether major companies can demonstrate that AI expenditure is translating into sustainable earnings growth. China's manufacturing recovery and movements in iron ore and copper will also remain important for Australian resources.

Our assessment is that markets are entering November with a more demanding set of conditions. Higher interest rates, uncertain Chinese demand and questions surrounding technology valuations are creating a challenging environment. However, companies with resilient earnings, strong balance sheets and sustainable cash generation remain comparatively well positioned. The next few trading sessions should provide a clearer indication of whether the current weakness represents a temporary adjustment or a broader reassessment of market valuations.