Hoping for a rate cut before Christmas? Don't hold your breath

Pressure is mounting on the Reserve Bank of Australia board to reduce the cash rate when it meets next week following data released by the Australian Bureau of Statistics yesterday.

ABS figures showed inflation fell by one percent to 2.8 percent in the September quarter, down from 3.8 percent in June. This places it in the RBA’s stated target range of 2 to 3 percent.

Mortgage holders will be waiting expectantly to see if the RBA board decides to cut the official interest rate from 4.35 percent as mortgage stress impacts an increasing number of Australians.

A recent survey by comparison site, Finder, revealed that up to four in 10 mortgage holders were contributing 40 percent or more of their income to repayments. Mortgage stress is considered to have kicked in once the borrower is contributing one third or more of their income.

Following RBA board meetings in recent months, Governor Michele Bullock has stressed the board’s commitment to driving down inflation. With yesterday’s inflation figures better than anticipated, expectations of a drop have risen. However, despite inflation sitting at the lowest level since March 2021, economists have cautioned that a cut before Christmas is unlikely.

“Short of substantially higher unemployment, lower underlying inflation or an external shock, the RBA is likely to remain on hold in the months ahead as the board look to sustainably return inflation to the target range,” REA Group senior economist Eleanor Creagh said.

The cautionary approach is due in part to the underlying reasons for the decline in figures, including Federal Government rebates on energy, which were a temporary measure to offset cost of living pressures.

Following the board’s last meeting in September, Ms Bullock was careful not to raise hopes of an interest rate cut before next year.

“If tomorrow we get an inflation number with a two in front of it, so it’s back in the band, that doesn’t mean that we’ve got inflation under control,” she said.

In recent months, the United States and Canada have both cut their cash rates by half a percentage point, prompting calls to do similar in Australia.

The boom in casual footware ushered in by the pandemic has ended, a potential problem for companies such as Adidas that benefited from the shift to less formal clothing, Bank of America says.

The casual footwear business has been on the ropes since mid-2023 as people began returning to office.

Analyst Thierry Cota wrote that while most downcycles have lasted one to two years over the past two decades or so, the current one is different.

It “shows no sign of abating” and there is “no turning point in sight,” he said.

Adidas and Nike alone account for almost 60% of revenue in the casual footwear industry, Cota estimated, so the sector’s slower growth could be especially painful for them as opposed to brands that have a stronger performance-shoe segment. Adidas may just have it worse than Nike.

Cota downgraded Adidas stock to Underperform from Buy on Tuesday and slashed his target for the stock price to €160 (about $187) from €213. He doesn’t have a rating for Nike stock.

Shares of Adidas listed on the German stock exchange fell 4.5% Tuesday to €162.25. Nike stock was down 1.2%.

Adidas didn’t immediately respond to a request for comment.

Cota sees trouble for Adidas both in the short and long term.

Adidas’ lifestyle segment, which includes the Gazelles and Sambas brands, has been one of the company’s fastest-growing business, but there are signs growth is waning.

Lifestyle sales increased at a 10% annual pace in Adidas’ third quarter, down from 13% in the second quarter.

The analyst now predicts Adidas’ organic sales will grow by a 5% annual rate starting in 2027, down from his prior forecast of 7.5%.

The slower revenue growth will likewise weigh on profitability, Cota said, predicting that margins on earnings before interest and taxes will decline back toward the company’s long-term average after several quarters of outperforming. That could result in a cut to earnings per share.

Adidas stock had a rough 2025. Shares shed 33% in the past 12 months, weighed down by investor concerns over how tariffs, slowing demand, and increased competition would affect revenue growth.

Nike stock fell 9% throughout the period, reflecting both the company’s struggles with demand and optimism over a turnaround plan CEO Elliott Hill rolled out in late 2024.

Investors’ confidence has faded following Nike’s December earnings report, which suggested that a sustained recovery is still several quarters away. Just how many remains anyone’s guess.

But if Adidas’ challenges continue, as Cota believes they will, it could open up some space for Nike to claw back any market share it lost to its rival.

Investors should keep in mind, however, that the field has grown increasingly crowded in the past five years. Upstarts such as On Holding and Hoka also present a formidable challenge to the sector’s legacy brands.

Shares of On and Deckers Outdoor , Hoka’s parent company, fell 11% and 48%, respectively, in 2025, but analysts are upbeat about both companies’ fundamentals as the new year begins.

The battle of the sneakers is just getting started.

Hoping for a rate cut before Christmas? Don’t hold your breath

While inflation has hit its lowest point since March 2021, the RBA is likely to exercise caution when it meets next week

The pandemic-fuelled love affair with casual footwear is fading, with Bank of America warning the downturn shows no sign of easing.