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FIVE at FIVE AU: ASX wobbles before ending flat; Will the RBA hike rates?

Published 24/07/2024, 04:03 pm
© Reuters.  FIVE at FIVE AU: ASX wobbles before ending flat; Will the RBA hike rates?
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It’s been a chaotic day on the ASX, which dipped 0.35% in early trade, had just about recovered by midday, then slipped back down to 7,948 points again in the mid-afternoon.

In the end, the bourse settled on a small loss of 12.90 points or 0.16%, coming to rest at 7,958.20 points.

Most sectors were flat with the exceptions of Materials, up 0.25%, Consumer Staples, down 0.68%, Energy with a 1.16% fall and Real Estate, which was the main culprit for weakness in the market today, down 1.58%.

Northern Star Resources (ASX:NST) and Evolution Mining were the standout mining stocks lifting the material sector, gaining 2.43% and 3.43% respectively.

On the other side of the ledger, the bigger Real Estate stocks were all in the red.

Goodman Group (ASX:GMG) fell 2.00%, Stockland Corporation also 2.00%, Mirvac Group 1.90% and GPT GROUP (ASX:GPT) 2.27%.

Commodities were also down overall, bar palladium which gained 2.18%. West Texas Crude fell 3.10% and base metals between 0.87% and 2.20%.

Overall, the market has fallen 1.24% over the last five trading days and sits 1.55% below its 52-week average.

Is RBA eyeing another rate hike?

State Street (NYSE:STT) Global Advisors APAC economist Krishna Bhimavarapu explains why hiking interest rates would be a poor choice by the RBA.

“Recent data releases have presented upside risks in Australia with a potential for an annual reacceleration in inflation in Q2,” Bhimavarapu wrote.

“That said, we believe the labour market is cooling fast and, inflation could actually decline into the Reserve Bank of Australia’s (RBA) target this year, sooner than they forecast.

“We still think a rate hike will be a policy mistake, as the economy is at a tipping point, where the unemployment rate could rise beyond their comfort level.

“Either way, with already feeble growth, the RBA will do well to exercise caution on their policy and proactively guide markets on their outlook.

“The RBA faces a unique conundrum: whether to join the impending wave of rate cuts, or hold or worse, hike.

“Over the last six months, the narrative for monetary policy has remained on the hawkish side in Australia, as opposed to advanced stage discussions on rate cuts in other advanced economies.

“The primary reason is unfavourable data developments, often clouded by seasonality and one-off factors. This lack of clarity in the data is reflected in the futures pricing of the RBA’s cash rate, which has a poor record of forecasting the RBA’s actual rate decisions.”

“Against this uncertain backdrop, what should investors do? Since we published our Global Market Outlook (GMO) in December 2023, we have seen stickier-than-expected inflation and mounting geopolitical risks,” Bhimavarapu continued.

“This picture has not shifted. We believe many factors remain in flux and investors should focus on diversifying their portfolios. We continue to see fixed income as a bright spot for investors given current yield levels, slowing growth, and continued disinflation.

“We remain cautious on risk assets and favour quality stocks in equity markets. Most importantly, we stress the need to retain flexibility by holding more cash, or cash-like instruments to respond as clearer signals develop.”

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