The ASX dipped today as the market waited for the Reserve Bank of Australia (RBA) to release its rates decision.
The S&P/ASX200 fell 67.20 points or 0.92% to 7,267.40 crossing below its 20-day moving average. The index has lost 0.75% for the last five days but sits 3.97% below its 52-week high.
The bottom performing stocks were Computershare Ltd and Mirvac Group down 4.97% and 4.20% respectively.
Only one sector hit the green today in Information Technology up 0.02%, but the biggest loser was Real Estate dropping 2.12%.
That’s no surprise given the RBA jacked the cash rate up another 0.25%.
To some that was more shocking than Met Gala ‘farshion'.
Another rate hike
Analysts were mixed on whether the RBA would raise the cash rate this month. Many believed rates would stay static, given favourable CPI data in April and inflation slowing over the March quarter, falling from 7.8% to 7% annually.
RBA governor Phillip Lowe had other ideas.
The cash rate will rise 0.25 percentage points to a decade high 3.85%, adding $78 to monthly repayments on a $500,000, 25-year loan.
“Inflation in Australia has passed its peak, but at 7% is still too high and it will be some time yet before it is back in the target range,” Lowe said in a post meeting statement on Tuesday afternoon.
“Given the importance of returning inflation to target within a reasonable timeframe, the Board judged that a further increase in interest rates was warranted today.”
Lowe said last month’s pause gave the board time to reflect on the data.
“The Board held interest rates steady last month to provide additional time to assess the state of the economy and the outlook,” he said.
“While the recent data showed a welcome decline in inflation, the central forecast remains that it takes a couple of years before inflation returns to the top of the target range.
“Inflation is expected to be 4.5% in 2023 and 3 per cent in mid-2025.”
Lowe will further detail what he thinks about inflation in Australia and the potential for more hikes at an RBA dinner in Perth tonight.
But there could be more pain to come.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” the RBA noted.
The wash up
CreditorWatch’s Chief Economist, Anneke Thompson said, “The RBA continues to be concerned about services inflation, and has today increased the cash rate further in order to strip more demand from the Australian economy. Last month’s March quarter CPI release provided crucial data for the RBA to assess, and while the overall inflation rate has declined from December peaks, services inflation is still rising and may not have peaked. Overall, the quarterly inflation rate was 1.4% over the March quarter, the lowest rate since December 2021 quarter. Inflation for Goods fell from an annual rate of 9.5% in December 2022 to 7.6% in March.
“Admin and Support and Accommodation and Food Services recorded the largest increases in turnover in the year to February 2023, according to the ABS Business Turnover Index. As well as solid demand, input costs in the restaurant/café sector have been the driver of price rises here. Restaurants use a large amount of gas and electricity and are forced to pass these prices rises on to their customers. Despite strong demand and good turnover, the food and beverage service sector has the highest rate of insolvency, according to our March Business Risk Index (BRI) data, as the cost of running these businesses eats into profitability and solvency.
“The RBA will be hoping that this latest move will put the economy deep into restrictive territory, and help to slow demand in the services space to ease price rises. However, both energy and rental costs are not responsive to interest rate moves, so it is likely inflation in these areas will prove very sticky.
“We are now highly likely to be at the peak of the monetary policy tightening cycle, as the current settings will put enormous pressure on borrowers, particularly those that secured a home loan in the past two years.”
Deloitte Access Economics head Pradeep Philip called the move “recession roulette”.
“The decision to lift the cash rate by 25 basis points to 3.85% is unnecessary given 10 previous rate hikes are still working their way through the economy,” he said.
“Meanwhile, hundreds of thousands of mortgage holders are still to see their repayments surge as pandemic-era low fixed rates revert to variable, while businesses continue to be squeezed.
“With the recent independent review into the RBA reminding Australians that full employment sits alongside price stability in the bank’s mandate, it is important that the RBA exercises caution on rate rises until it has seen the impact of the last 10 fully pass through the economy.”
On the flipside, Market Money general manager Stephen Zeller called the hike a “necessary evil”.
“Even though we can see these aggressive rate increases have had some effect on inflation, we’re still nowhere near the target range of 2-3 per cent,” Zeller said.
“A person with a $600,000 mortgage could be paying $1351 more each month than they were at the start of May 2022, so it really does pay to do your research and be prepared for that fixed rate cliff.”
Qantas’ new CEO aims to fly high
Qantas Airways (ASX:QAN) Ltd CEO Alan Joyce will retire this year after 15 years at the helm.
He will be replaced by the company’s chief financial officer Vanessa Hudson, who beat out 40 candidates for the top job.
Eventually, it came down to two: Hudson and Qantas Loyalty boss Olivia Wirth.
“A lot of thought has gone into this succession and the board had a number of high-quality candidates to consider both internally and externally,” chairman Richard Goyder said.
Hudson oversaw the company’s balance sheet during the pandemic and then turned a record interim profit in the six months ended December 31.
“At the board’s request, I extended my time as CEO to see through the COVID-19 recovery plan, so now that we’re on the other side of that crisis it’s a logical time for me to step down,” Mr Joyce said.
“There is a lot still to be done, as [I have] six months left in the role, and I’m looking forward to working with Vanessa on that with a smooth handover.”
RBC analyst Owen Birrell said Hudson was the logical choice.
“She has been involved in developing group strategy for the last five years and also led the fleet selection process in 2022 for the renewal of the domestic jet aircraft fleet,” he said.
“Given the significant fleet renewal program that Qantas is undertaking through projects Winton and Sunrise, we believe Vanessa is the most suitable and appropriate candidate to execute on the strategy.”
Josh Gilbert, Markert Analyst at eToro alluded to the rise of the Qantas share price during Joyce’s reign.
"Alan Joyce leaves Qantas after 15 years at the helm, during which time Qantas' share price has risen by more than 150%. Although his legacy may be up for debate between investors and customers, his leadership over the last few years will have left investors pleased, with Qantas posting a record half-yearly profit within the 2023 financial year in a significant turnaround for the airline.
“Any change in senior leadership will always result in some uncertainty for shareholders, particularly after Joyce's long reign and recent success. However, his successor Vanessa Hudson, Qantas’ first-ever female CEO, has been with the business for almost 30 years. She previously served as Qantas’ CFO since 2019, helping to navigate the COVID turnaround, which should reassure investors.
“Hudson takes over at a time when the business is flying with record profitability and surging demand, but relations between passengers and unions are near all-time lows, and competition is intensifying. The major task for Hudson will be to keep passengers happy while pleasing investors, which won’t be an easy feat – especially with Joyce’s tenure concluding with record profits."
Of her position Hudson welcomed the opportunity.
“This is an exceptional company full of incredibly talented people, and it’s very well positioned for the future. My focus will be delivering for those we rely on and who rely on us – our customers, our employees, our shareholders and the communities we serve,” she said.
Qantas fell 2.81% on the day.
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