The ASX is higher today. The S&P/ASX200 gained 37.60 points or 0.51% to 7,448.00. Over the last five days, the index has gained 1.48% and is currently 1.58% off its 52-week high.
Top-performing stocks in this index are TPG Telecom Ltd (ASX:TPM) and Gold Road Resources Ltd (ASX:GOR), up 11.45% and 8.73% respectively.
All sectors were higher with Information Technology and Materials leading the way with 1.27% and 0.98% gains.
Markets were buoyant, having only priced in a 14% chance of rates rising.
Cash rate on hold
The Reserve Bank of Australia (RBA) has left the cash rate on hold, however, governor Phil Lowe has cautioned that further rate rises could be close as he looks to fulfil his final month in the job.
The official cash rate remains at 4.1% for now, with current headline inflation readings sitting at 6%, still well above the 2% to 3% range.
A major downturn in inflation is being stymied at present by rising rents and energy costs.
Dr Lowe did say inflation was heading in the right direction.
“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,” Dr Lowe said.
“In light of this and the uncertainty surrounding the economic outlook, the board again decided to hold interest rates steady this month.
“This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.”
On further rate hikes, he said: “That will depend upon the data and the evolving assessment of risks.
“In making its decisions, the board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market.”
There are certainly households under stress now. The effects of 12 rate hikes have added more than $1,100 to mortgage bills and have pushed more than a million homeowners into financial stress.
CreditorWatch chief economist Anneke Thompson noted the better-than-expected inflation rate.
“The Reserve Bank of Australia (RBA) today made the decision to again hold the cash rate at the current level of 4.10%. A better-than-expected inflation rate over the June quarter, as well as slowing retail sales growth points to cooling economic conditions.
"And while the unemployment rate is still at record low levels, the forward indicators of employment conditions all point to a much tighter jobs market going forward,” Thompson said.
“These forward indicators include SEEK jobs vacancy data for June 2023, which are down 22.1% compared to the year prior. In addition, NAB’s Monthly Business survey shows capacity utilisation is down to 83.5%, which is the lowest read since April 2022.
"Capacity utilisation is a very good leading indicator of the unemployment rate and falling utilisation typically means a higher unemployment rate in three to six months’ time.
“In a further sign of increasingly cooling economic activity, B2B trade payment defaults, as measured in CreditorWatch’s June Business Risk Index (BRI), was at record high levels and around 50% higher than this time last year.
"This means a record number of late payment defaults were lodged by one business against another, highlighting just how tight cash flow is for some companies. It appears that savings levels of both consumers and businesses are now having a considerable impact on consumers’ ability to spend on discretionary items and for some businesses to be able to pay their bills on time.
“Looking forward, it is likely we will see upward movement in the unemployment rate over the second half of the year, which will further reduce inflationary and wages pressure.
IG Markets analyst Tony Sycamore said, “The RBA's decision to keep rates on hold today was based on the same reasons as last month - to assess the impact of a cumulative 400bp or rate hikes and evidence that a sustainable rebalancing between supply and demand is underway.”
As the RBA further assesses data coming in, Sycamore said “The statement displayed more comfort around the inflation outlook, noting that while inflation remains "still too high at 6%", recent data is "consistent with inflation returning to the 2-3% target range over the forecast horizon" all based on the provisor that productivity growth “picks up”.
“The RBA retained its tightening bias. Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe", which fits with our thinking of one more 25bp hike to 4.35% before year-end."
Five at five
On the small cap front, the S&P/ASX Small Ordinaries is up 0.66% with some strong wins for some stocks in this index.
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