The ASX regained some lost ground today, lifting by 0.73% or 50.9 points to 7,059.80 and recouping about half of the losses from yesterday.
The sectors were subsequently in the green almost across the board, with only Consumer Discretionary falling (-0.30%) and Information Technology offering the best performance (+2.24%).
Commodities were again a mixed bag, mostly green with small dips in tin (-1.44%), copper (-1.11%), platinum (-1.65%) and gold (-0.48%) and a large chunk out of West Texas Intermediate Crude, down 4.30%.
On the positive side of the balance book, palladium was up 2.38% and aluminium up 1.49%, with small gains in silver, nickel, lead and zinc.
Coronado Global Resources Inc and Pexa Group Limited were the top-performing stocks in the ASX200 today, up 6.02% and 5.74% respectively.
In the news
SVB collapse plus CPI data could spell pullback
The collapse of Silicon Valley Bank alongside crypto-heavy banks Signature and Silvergate and a drop in the Consumer Index Price (CPI) may lead the US Federal Reserve to reconsider further rate hikes.
Capital.com senior analyst Daniela Hathorn explains.
“US stock indices jumped higher following a few turbulent days arising from the fallout of the Silicon Valley Bank (SVB) collapse, which has seen the most volatility in US bonds in the last two decades,” she said.
“The drop in CPI has fallen in line with hopes that the US economy is not overheating, something that had become a big concern after the strong economic data in January.
“Friday’s jobs data also relieved some of the anticipation for next week’s FOMC meeting as the unemployment rate ticked up slightly after falling to the lowest level since 1969 in January.
“The collapse of SVB has also served to reprice expectations regarding the FOMC meeting as the chance of a 50 basis points (bps) hike, which had become a strong probability after Powell’s hawkish comments last week, has been completely priced out, with an 80% chance of 25 bps vs 20% chance of no hike at all.
“A lot of people thought that the Fed needed something to break in order to really shift their monetary policy and this may have been that breaking point.
“The fragility of the banking system and the fact that interest rates have affected lenders in the US economy have really come to bear with the collapse of SVB and Signature Bank.
“This may be the turning point for the central bank to start reversing or moderating monetary policy.
“In fact, many times we’ve heard Powell reiterate that the rate hikes delivered last year weren’t evident enough to have easy financial conditions, given the extremely tight labour market and stubborn inflation.
"But the impact an inverted yield curve is having on smaller banks – which are having to borrow at higher rates than what they lend out in the longer-term – is a clear sign of struggle, and may just be the 'breaking point' the Fed has been waiting for, hence the repricing in rate expectations and the significant drop in bond yields.”
Potential pause in interest rate hikes
Bendigo and Adelaide Bank (ASX:BEN) chief economist David Robertson believes the RBA may pause rate hikes as early as April, although any sort of relief in the form of rate cuts is still someway off.
Interest rates
“The tenth successive RBA rate hike delivered last week leaves official rates 3.5% higher than a year ago but a range of factors suggest a pause is imminent,” Robertson said.
“As we mentioned last month, we expect a plateau in rates by May, but for the RBA to still maintain a tightening bias.
“Rate cuts are unlikely to be seen until core inflation is back below 3%, which may not occur until late 2024.
“In the last few weeks, the release of wages growth data was more benign than forecast, the unemployment rate has increased further to 3.7%, GDP data showed a deceleration in growth and in household spending, and the monthly Consumer Price Index fell from 8.4% to 7.4%.
“This suggests that the cumulative impact of the aggressive tightening cycle is starting to show. These events all seem to line up with our expectation that inflation peaked in December,” Robertson said.
International markets
Robertson noted the other factor that may influence the RBA is stress in the US banking system with the collapse of Silicon Valley Bank and US regulators taking swift action to stabilise their banking system.
“The US Federal Reserve is now expected to take rates to a ceiling of only around 5%. Just a week or two ago, a 6% rate was still being discussed but further US data on inflation, jobs and manufacturing will continue to be closely scrutinised and volatility in a range of markets is likely to be elevated,” Robertson explained.
“For the RBA, it gives another reason to pause rate hikes for the moment, despite needing to keep warning of potentially higher rates until inflation is back near its target, and despite this event being on the other side of the globe."
Inflation and unemployment
“Inflation and the jobs market (including job vacancies) peaked in late 2022. The unemployment rate since then has increased to 3.7%,” Robertson highlighted.
“A greater share of the family budget is needed for interest repayments as well as the ongoing impact of inflation making all goods and services more expensive.
“Tourism and international arrival numbers continue to pick up and demand for Australian exports remains strong, which will be crucial to offset the slowing in household spending as higher interest rates weigh on demand,” Robertson concluded.
Five at Five
AuKing Mining raises further $2 million to advance Manyoni and Mkuju uranium projects
AuKing Mining Ltd (ASX:AKN) has raised a further $2,126,000 at a $0.10 issue price - a premium of 69% to its closing share price on March 14, 2023.
The $2.1 million will be used to hit the ground running at the recently acquired Manyoni Uranium Project in central Tanzania, with the advanced project already on a path to near-term production.
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Synertec Corporation receives first revenue-generating purchase order from Santos for Powerhouse technology
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MGC Pharmaceuticals enrols first patient in data collection app as part of CannEpil™ clinical trial
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The company will log the data from the start of an observational study monitoring the effects of its epilepsy treatment, CannEpil™.
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Kingwest Resources progresses ‘strategic merger’ with Brightstar
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Tempest Minerals buoyed by emerging Meleya copper anomaly
Tempest Minerals Ltd (ASX:TEM) says there’s more to explore at the Meleya Project, where the company has just identified a 4-kilometre copper anomaly at the Remorse target.
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On your six
Risk management in volatile markets makes for more rewarding investing
War, inflation, hawkish central banks and rising interest rates. It’s a nightmare recipe for investors, who must now tread carefully over the corpses of failed companies and discarded investment strategies.
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