The ASX has taken a tumble today, falling 0.88% or 68.80 points to 7,770.00 after hotter-than-expected monthly CPI data resurrected the spectre of more potential interest rate hikes.
Rallying in response, the Aussie Dollar gained 0.51% to US$0.6681 intraday.
Sectors were mostly in the red – Consumer discretionary and Real Estate took the brunt of the damage, both falling more than 1.5%.
Information Tech and Energy bucked the trend, gaining 0.66% and 0.42% respectively.
Woodside Energy led the energy stocks higher, gaining 1.25%, while Info Tech enjoyed wider gains, with lifts to WiseTech Global, Xero and NextDC.
Commodities were mostly flat, with some positive movement for West Texas (+1.44%) even as silver fell 2.17% and palladium 3.44%.
Overall, the ASX200 is essentially unchanged for the week, having lost earlier gains, and sits 1.78% below its 52-week high.
Monthly CPI rises above expectations
IG Australia market analyst Tony Sycamore joins us to discuss this month’s CPI numbers and what it means for the economy.
“The monthly CPI indicator rose by 4% year-on-year in May, up from 3.6% in April and above consensus expectations of 3.8%,” Sycamore writes.
“The ex-volatile measures increased to 4% in May from 4.1% in April. Annual trimmed mean inflation soared to 4.4% in May, from 4.1% in April.”
"CPI inflation is often impacted by items with volatile price changes like automotive fuel, fruit and vegetables, and holiday travel,” Michelle Marquardt, ABS head of prices statistics said.
“It can be helpful to exclude these items from the headline CPI to provide a view of underlying inflation, which was 4.0% in May, down from 4.1% in April."
“Today’s release is skewed towards the sticky services component this month,” Sycamore continued.
“At the RBA’s last board meeting, it was noted that, “The persistence of services price inflation is a key uncertainty” and “The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome”, he said.
“Today’s rise in the Trimmed Mean to 4.4% puts it well above the RBA’s forecasts for a Trimmed Mean of 3.8% in June 2024.
“It also raises questions about the RBA’s stated objective to ensure inflation returns to its target band within a reasonable timeframe, without further tightening of monetary policy.
“The RBA's next Board meeting on August 6 is now 'live' with a high chance of a 25 basis point (bp) RBA rate hike to 4.60%. The only possible way out is for a series of softer numbers in most, if not all, of the key data points below.”
- Labour Force Report Thursday, July 18.
- Retail Sales for June Friday, July 26.
- Q2 Inflation Wednesday, July 31.
“Ahead of the CPI release, the rates market was pricing in about a 12% chance of a 25bp RBA rate hike in August to 4.60%; following the data, the odds have increased to 35%,” Sycamore explained.
“The ASX200 has extended its fall today as the rates market moves to price in an August rate hike. From being down 43 points (-0.55%) pre the release, it is now down 82 points (-1.04%) at 7,756 (as of midday).”
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