Despite the Reserve Bank of Australia leaving the cash rate on hold and the departure of Qantas Group Ltd CEO Alan Joyce, the ASX fared poorly today.
The S&P/ASX200 dropped 17.50 points or 0.24% to 7,301.30. Over the last five days, the index has gained 1.26% and is currently 3.52% off of its 52-week high. The ASX200 gave back over half of Monday's gains due to waning optimism around easing measures in China.
The bottom-performing stocks today in this index are Chalice Mining and West African Resources down 14.93% and 5.26% respectively.
Looking at the sectors, most were down. Health care and Industrials buckled the trend up 0.53% and 0.35% respectively. Utilities was the hardest hit, down 1.27%. Energy lost 0.77%.
Qantas trades slightly higher
Qantas had arrested its slide today, trading slightly higher at 0.09% to $5.655 in mid-afternoon trade. That was until the close of market, when it finished 0.18% lower.
Vanessa Hudson will take over as CEO on Wednesday, with a range of crises to deal with including the travel credits debacle, an ACCC lawsuit, Qatar Airways shenanigans and general public discontent over record profits, poor service and cancelled flights.
Joyce said, “The focus on Qantas and events of the past had made it clear that the company needed to move ahead with its renewal as a priority.
“The best thing I can do under these circumstances is to bring forward my retirement and hand over to Vanessa and the new management team now, knowing they will do an excellent job.
“There is a lot I am proud of over my 22 years at Qantas, including the past 15 years as CEO. There have been many ups and downs, and there is clearly much work still to be done, especially to make sure we always deliver for our customers. But I leave knowing that the company is fundamentally strong and has a bright future.”
Qantas pilots seemed happy.
The pilots said in a statement titled the new CEO can rebuild Qantas: “We look forward to working constructively with incoming CEO Vanessa Hudson to rebuild our iconic airline into the respected and trusted brand that has made all Australians proud,” said Australian and International Pilots Association president Tony Lucas.
“There is much work to be done, however, we trust that Ms Hudson recognises the power of respecting and valuing all Qantas staff and how that can play a significant role in the renewal of the airline.”
Rates remain on hold
The other big news of the day was the RBA’s decision to leave the cash rate unchanged at 4.10% for a third consecutive month, as widely expected.
The decision gives the RBA more time to assess the impact of a cumulative 400bp of rate hikes and based on evidence that a sustainable rebalancing between supply and demand is underway.
IG Markets analyst Tony Sycamore said, “Recent data has fallen the way the RBA would have hoped. While RBA Governor Lowe may have been slow to start hiking rates, he departs with his head held high, knowing that much of the heavy lifting required to bring inflation under control is in place ahead of Michele Bullock's tenure.
“Headline inflation recently eased to 4.9% YoY in July, down from a peak of 8.4% YoY in December, and a much-feared wage breakout has failed to materialise. Finally, the release of the national accounts tomorrow is expected to confirm the slowest rate of growth since the December quarter of 2020.”
Sycamore did say, we could expect one more hike.
“Heading into today's announcement, the rates market was 100% priced for the RBA to keep rates on hold today at 4.10%, with a non-trivial chance of a 25% chance of a rate hike before year-end. We think this underprices the chance of one more rate hike before year-end, particularly given the rapid move higher in crude oil prices last week and still elevated rent inflation.”
Dr Lowe mirrored the sentiment.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks.”
Of the decsion to hold for the moment, 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,” he said in a statement on Tuesday afternoon.
“This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.”
In good news for homeowners, economists at the Commonwealth Bank are predicting first cuts in early 2024.
Chief economist at CreditorWatch Anneke Thompson said economic indicators were pointing in the right direction.
“In light of recent data indicating weakening economic conditions, the cash rate today was held at 4.10% by the Reserve Bank of Australia (RBA).
After months of leading indicators pointing to a slower jobs market, the unemployment rate increased from 3.5% to 3.7% in July 2023. This represents an additional 35,600 unemployed people and is almost 65% of the annual increase in unemployment over the year to July.
"Coupled with a fairly moderate increase in the Wage Price Index (WPI) of 3.6% over the year to June, as well as declining job ads, the RBA can now be reasonably confident that the threat of the dreaded price-wage spiral has diminished considerably.
“Retail trade data also tells us that Australian consumers have slowed their spending – where they can – considerably. Certain areas of non-discretionary services, such as rents, insurance, utilities and education, continue to record high or rising price increases. However, the RBA is very likely to recognise that further increases to the cash rate will do little to stem these prices, as various exogenous impacts are responsible for price rises in these sectors.
“The impact of higher interest rates on Australian businesses is being felt mostly by businesses who rely on discretionary spending. This means that according to Creditorwatch’s July 2023 Business Risk Index (BRI) data, 48% of food and beverage businesses and 35% of retail trade businesses are considered high risk.
"This puts these two sectors in the top three for high risk industries – the other industry being administrative and support services, where 29% are considered high risk. Quite incredibly, only 13% of food and beverage businesses are currently considered low risk, highlighting just how tough it is for the restaurant and café sector.”
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