The ASX has dipped today.
The S&P/ASX200 dropped 28.40 points or 0.38% to 7,353.10 after setting a new 20-day high. Over the last five days, the index has gained 0.59% and is currently 3.56% off of its 52-week high.
Bottom-performing stocks in this index are Lake Resources NL (ASX:LKE, OTCQB:LLKKF) and Sayona Mining Ltd (ASX:SYA) down 10.09% and 8.14% respectively.
Looking at the sectors, only Utilities made it to the green with a 0.64% rise. Energy lost the most, down 2.11%, followed by Consumer Staples down 1.28%.
Global growth but recession still looms
It’s all light and shade on the markets at the moment, with no one really able to predict the movement of economic activity and its effect on inflation.
Principal Asset Management chief global strategist Seema Shah took a look at global economic activity, a strong global economy and a looming recession.
“Global economic activity has continued to defy policy tightening and the multiple geopolitical shocks. Softness in economic data in late-2022 proved to be seasonal noise and, in fact, since the start of 2023, activity data has only emphasized the continued resilience of the global economy.
“The stabilisation in global manufacturing activity can be at least partially traced back to the reopening bounce in China, while the sharp drop in energy prices has given global consumers a boost. Historically tight labour markets are also contributing significantly to the broad economic strength across global regions.
“And yet, even as the global economy looks strong, leading indicators emphatically signal recession. The New York Fed’s own recession model suggests that the probability of recession within the next 12 months is the highest since the early 1980s.
"The Treasury yield curve remains deeply inverted - a historically reliable recession indicator. Not only is the 2s10s curve inversion material and sustained but other segments of the yield curve are also inverted, including the 3-month1-year curve which is typically consistent with recession risk within a 12-month period.”
RBA minutes hint at rate rises
Quarterly CPI data released on April 26 will play a key role in the Reserve Bank of Australia’s (RBA) economic forecasts in May.
The RBA has a lot to ponder and hasn’t ruled out an 11th cash rate hike.
In today’s minutes, the RBA stated “it is important to be clear that monetary policy may need to be tightened at subsequent meetings and that the purpose of pausing at this meeting was to allow time to gather more information”.
"Members agreed that it would be helpful to have additional data and an updated set of forecasts before again considering when and how much more monetary policy would need to be tightened to bring inflation back to target within a reasonable timeframe," the minutes say.
The RBA put rates on hold in April.
"Members judged that monetary policy was already restrictive," the minutes say.
The RBA considered the cost of home loan repayments was now a large percentage of household income and that monetary policy was slowing down the housing market.
"Over the coming month, members observed that they would receive another quarterly reading on inflation, additional monthly readings on the labour market, household spending and business conditions, and further information on developments in the global economy and financial markets," the minutes say.
However, the RBA stated that population growth "could put significant pressure on Australia’s existing capital stock, especially housing, which would in turn manifest in higher consumer prices".
Board members noted that falls in house prices might be smaller and more short-lived than expected. They further noted that while high immigration could reduce wage pressures where labour shortages occurred, it "could be somewhat inflationary for a period".
Social and public sector workers are also expected to get a pay rise which could flow through to the economy.
"Members observed that the flow-through to inflation from wages in social and public sector industries is somewhat diffuse, given the prevalence of administered prices, but judged that it was nonetheless likely to have some impact," the minutes say.
"Overall, wages growth remained consistent with the inflation target, provided there was some pick-up in productivity growth."
Citi analysts say rate cuts are a while away
Citi chief economist Josh William said Australians shouldn’t expect rate cuts too soon.
Hawkist words from the RBA suggest any cuts are a while away.
"Indeed, all the risks highlighted by the Minutes suggest that the board is prepared to hike rates further, rather than look for an avenue to loosen its current tight stance on monetary policy," Williamson said.
There are unlikely to be cuts this year.
"Most recently, at least one major Australian bank has started lowering their fixed rate mortgage products at a time when it looks as if the property market is bottoming out earlier than expected.
"This environment is not conducive to the RBA Board communicating the possibility of interest rate hikes."
Indicators suggest the housing market is bottoming out early and is likely to rise sooner than expected.
"Fundamentals such as higher population growth and nominal incomes – thanks to an incredibly tight labour market – are partially offsetting higher borrowing costs," Williamson said.
That’s not to say volatility won’t remain as more supply becomes available, but mortgagees struggle with jacked-up repayments. However, we should still see price drops in 2023.
CBA's head of Australian economics Gareth Aird agreed a drop in house prices would be smaller and shorter-lived than expected.
"We agree and will be revisiting our home price forecasts over coming weeks – we had expected a peak to trough fall in home prices of about 15%," Aird said.
"In some sense, the Minutes today are posing a bigger question to the Commonwealth Government and other policymakers – what is the role that strong population growth plays in the economy, and is that the right course to pursue, particularly in the current environment?"
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