The ASX lifted today, buoyed by a relatively positive Reserve Bank of Australia (RBA) rate call.
The S&P/ASX200 gained 30.40 points or 0.40% to 7,706.20, crossing above its 20-day moving average. Over the last five days, the index is virtually unchanged but is currently 1.87% below its 52-week high.
Top-performing stocks in this index are Nickel Industries Ltd and Bellevue Gold Ltd (ASX:BGL), up 7.43% and 6.56% respectively.
Looking at the sectors, Materials and Energy led the way up 2.24% and 1.92% respectively. The main drag was Consumer Staples down 0.80%.
The small cap market was up marginally, with the S&P/ASX Small Ordinaries (XSO) gaining 0.043% to 3,031.00. Over the last five days, it is down 0.81%.
Reserve Bank keeps rates on hold
The RBA has left interest rates on hold at 4.35%, the highest level since 2012.
Economists are factoring in a September rate cut as a slowdown in inflation, mixed with a slowing economy start to have an impact.
Any cut will come as a relief as those with a $1 million mortgage are now paying $2,420 per month more than they were since the first rates cycle in May 2022.
According to RateCity.com.au, a .25% cut would shave $113 per month off that mortgage.
The RBA is still looking to bring inflation back down to a 2-3% target and hasn’t ruled out a further hike, although this is unlikely.
“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out," an RBA statement said.
ANZ Bank chief executive Shayne Elliott believes a cut won’t happen until next year.
“The house view at ANZ is that we’ll probably see rate cuts towards the end of the calendar year. My personal view is that is still optimistic,” Elliott said on Monday.
“I still think that inflation is more hard set in Australia and around the world than people think. Why? Because it’s starting to be built into people’s expectations and what we’re seeing is wages are growing pretty well so people are out spending that little bit more money.”
As widely expected, the Reserve Bank of Australia kept its official cash rate on hold at 4.35% at its board meeting today.
IG Markets analyst Tony Sycamore said of the decision, “The RBA noted that higher interest rates were working to establish a more sustainable balance between demand and supply. However, while goods inflation continues to moderate, it reiterated its concerns about sticky services inflation.”
The RBA statement read: “Services inflation remains elevated, and is moderating at a more gradual pace.”
Sycamore pointed to insights into the economy's trajectory and inflation from the following key data ahead of the next RBA policy meeting on May 7.
- Jobs data for February (Thursday, March 21).
- Monthly CPI Indicator (Wednesday, March 27).
- Retail Sales for February (Thursday, March 28).
- Q1 inflation data on April 24.
- Jobs data for March (Thursday, April 18).
- Q1 2024 inflation data (Wednesday, April 24).
- Retail Sales for March (Tuesday, Apri 30).
“We expect the RBA to remove the last remnants of its tightening bias at the June board meeting, before cutting rates by 25bp in August before a second cut in November, which will see the cash rate end the year at 3.85%.”
CreditorWatch’s chief economist Anneke Thompson said the lack of meaningful data had positioned the RBA to hold.
“Today’s decision by the RBA to leave the cash rate on hold comes as no surprise, given the lack of any meaningful data pointing to the economy continuing to overheat and further threaten inflation rises.
“In fact, National Accounts data released earlier in the month provided solid evidence that monetary policy tightening is having its intended impact on domestic demand.
"Gross Domestic Product (GDP) only grew by 0.2% over the December quarter, and by 1.5% through the year. On a per capita basis, GDP has been negative now for three straight quarters, indicating that we are in a ‘per capita’ recession.
“CreditorWatch’s Business Risk Index (BRI) data for February 2024 continues to show a sustained trend decline in the average value of invoices that our customers are issuing.
"This decline trend began in the early months of 2021, but accelerated over 2023, mirroring the slowdown in economic activity that the National Accounts data revealed.
“Trade payment defaults – that is, one business lodging a payment default for an invoice more than 60 days overdue – are also at record highs, indicating there are many businesses out there that are struggling to pay their bills on time. There is no doubt that many small and medium businesses, particularly in food and beverage, retail trade and construction industries, are doing it tough.
“It is unlikely that these businesses will get any interest rate relief until the third quarter of 2024, given services inflation remains elevated and is only coming down at a slow pace.
"While interest rates remain at 4.35%, consumers will continue to hold back on spending on discretionary items, and this will further negatively impact retail trade, but overall, will help bring inflation down.”
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