All eyes are on the Reserve Bank’s next move when it meets tomorrow, with economists widely predicting another rate hike, even as many COVID-19-era borrowers edged closer to the so called ‘mortgage cliff’ – when many cheap fixed-rate home loans are expected to expire, exposing borrowers to the full force of the intervening months of rate rises.
The markets were nonchalant about this, with the S&P/ASX200 up 67.20 points or 0.94% to 7,212.30 at close of play, after crossing above its 200-day moving average.
Over the last five days, the index is virtually unchanged but it’s currently 4.70% below its 52-week high.
All sectors were in the green, or at the very least the black, apart from Information Technology, which was down 1.16%. Consumer Discretionary led the charge, up 1.79%, with Financials (1.43%), Real Estate (1.22%) and Materials (1.19%) closely behind.
In the US there were 52-week highs last week for the Nasdaq, as IG’s Tony Sycamore explained: “We expect AI mania to remain a driver of the Nasdaq in the months ahead, with the technology still too early in its lifecycle to disappoint relative to expectations.
“Pullbacks in AI-related tech stocks and the Nasdaq will likely be met by buyers looking to position for the next leg higher towards the 15,268 high of March 2022.”
Oil producers to slash output
Saudi Arabia has announced it is set to cut oil production by one million barrels a day for a month starting in July as part of an effort by the Organisation of Petroleum Exporting Countries plus Russia and other smaller producers (collectively, OPEC+) to shore up crude prices.
The statement followed a meeting on Sunday in Vienna of the alliance, at which the big oil producer also agreed to extend an earlier production cut of 500,000 barrels per day through to next year.
Russia is also expected to extend a production cut of 500,000 barrels a day through to the end of 2024, while other OPEC+ members also agreed to curb output.
US monetary policy easing unlikely
Over in the US, the sentiment on the central bank’s next move mirrors our own, though there is the possibility of a short pause. Blerina Uruci, chief US economist at T Rowe Price shares her view:
“I think the Fed is likely to skip hiking during the June meeting. Chair Powell and the Fed leadership in recent comments had sounded relatively dovish which I interpreted as more consistent with a skip during the June meeting while leaving the door open to another rate hike down the line.
“More importantly, I interpret the current focus on data dependency as responding to the trend not the month-to-month ebbs and flows in economic indicators.
“This allows [the Fed] strategy to shift gears and hike at every other meeting or after assessing the effects of monetary policy and banking stress over the summer months. In this strategy, several skips could well turn into an extended pause under the right inflation path, although I do not have strong conviction in this outcome.
“Instead, I believe that further interest rate increases may be needed given the underlying resilience of the US consumer and labour market. But with policy already restrictive, more spaced-out hikes seem appropriate.
“At the same time, the recent improvement in the housing data illustrates how finely balance the risk rewards are for the Fed. They cannot let go of their inflation fight just yet. For this reason, I remain strongly convicted that policy easing will not be in the cards this year.”
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