Inflation data puts the RBA’s next move in focus

Alex Pakoulos (0:01)

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Ricardo Goncalves (0:06)

Coming up, investors, keeping an eye on inflation, US interest rates and the impact on AI, all of that and more next.

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You're listening to SBS on the Money with Ricardo Goncalves.

Ricardo Goncalves (0:21)

Hi, everyone. It's Monday, the 26th of October, 2026, a day with the Australian share market rose, S&P, ASX 200, nudging 0.2% higher, despite being in the red for most of the day. It found support after the oil price eased from a six-month high. The material sector did best, but consumer staples was the worst, ahead of official inflation figures due out on Wednesday, which may determine whether the Reserve Bank puts interest rates next week. So for more on that and the key story for investors at the moment, and that's the AI buildout, I spoke with Alex Pakoulos. He's the CEO at Monjaro Capital.

Alex, so a big week for the markets. It opened weaker, but slowly climbed into the black today, but there's a lot happening. We've got central bank meetings to come, the ongoing war in the Middle East, higher oil prices, US results season, ongoing debate about AI and AI valuations. How would you describe investor sentiment right now, and what exactly is driving it?

Alex Pakoulos (1:18)

Look, I think the only way to describe sentiment at the moment is that it is nervous around the AI buildout, and particularly the funding of the AI buildout. And that really is the key thing driving markets at the moment. High oil prices and inflation interest rates are definitely contributing factors to that. But what they're all impacting is that AI buildout story. So as you said, the market was down early. It's clawed back some of those losses. It was down early because oil prices were up on Friday night.

They've come off a little bit now today. But the key story is that interest rate and inflation. But what it's feeding into is higher inflation. We can talk more about this in a minute. But higher inflation leading to higher interest rates, the impact of that is what does that mean for funding out this AI buildout? And so that's the big story in markets. You've seen some of the big US players come off a lot in terms of their stock prices. CoreWeave, which is a big AI data center business, its bonds went up to yielding 15 percent, and the stock was down heavily.

You saw the firmest IPO pulled locally, and a bunch of other IPOs have been pulled. I think the key focus here, and we might get some data on this tonight, is the anthropic IPO that's coming up. Their S1, which is equivalent to their prospectus, is meant to be coming out tonight, and that's going to be a huge indicator of where we go from here.

Ricardo Goncalves (2:47)

Now, when you're talking about interest rates, obviously, you're not just meeting Australian interest rates, but more importantly, US interest rates. We know the US Federal Reserve is meeting this week. We've got inflation data coming out on Wednesday here. What's the market expecting, and to what extent will this higher interest rate environment change the investment landscape, especially considering, as we touched earlier, that oil price at a six-month high, and then there's those concerns about AI?

Alex Pakoulos (3:10)

Yeah, look, the interest rate environment is key to all of this, and the thing that central banks, both domestically and in the US and globally, that matter are worried about, is persistent inflation. And so the CPI print on Wednesday is important for that. Consensus is around 1.3% headline number for the quarter, and an annual rate of 3.9%.

The RBA focused on what is called trimmed mean, and that's expected to be about 1% for the quarter. The relevance here is that 1% is higher than what the RBA forecast was back in August when they were looking at 0.8 of a percent. And so what you've seen recently is because of that persistent inflation in Australia, expectations for further RBA interest rate increases, or specifically this month, have gone from a 20% chance of an increase now to 65%. And that move, a lot of that happened after the Deputy Governor Andrew Howser spoke last week at a city conference where he spoke about inflation outlook being materially worse than the RBA had expected back in August. So that is what is playing into higher interest rate expectations domestically. But you're seeing the same globally. The Fed meeting is on Thursday. They're expected to be on hold, but the market does see an 80% chance of a December rate hike coming out of the Fed. So this is a global phenomenon and it's impacting equity markets.