There hasn’t been this much excitement around a Reserve Bank of Australia (RBA) decision for years. Certainly, for the last four years, rates decisions have caused anxiety, particularly among mortgage holders.
However, most analysts are factoring a 0.25% rate cut today, which will put a smile on the faces of homeowners who have seen thousands of dollars heaped on their home loan repayments after 13 consecutive rises and a year on hold.
With that in mind, the ASX rise is set to rise before today’s decision, with ASX 200 futures up 0.3% to 8,513 points with US markets closed for President's Day.
There is no guarantee rates will fall today.
“While a hike by the RBA is all but baked in by the futures markets and bank analyst consensus, complexities remain, making the RBA’s choice more difficult than it may initially appear," Webull Securities Australia CEO Rob Talevski said.
"No matter the decision, the RBA will face criticism in Canberra, meaning a data-driven approach for either outcome is a must.
“While the data points in Australia are heading in the right direction, uncertainty is the enemy of any central bank, especially for one that hasn’t cut rates in over four years.
“Unknown outcomes from recent US policy shifts and persistent weakness in China will certainly be on the bank’s radar, and it wouldn’t be outside of the realm of possibility that the RBA will wait until March for the dust to settle.”
IG Markets analyst Tony Sycamore said the RBA was widely expected to lower the cash rate by 25 basis points to 3.85% this afternoon. This would mark the RBA's first rate cut since November 2020, with a second 25 basis point reduction nearly priced in for May and a cumulative 73 basis points of cuts anticipated in 2025.
“The RBA’s updated forecasts are expected to revise lower near-term inflation and GDP forecasts before a recovery in GDP as real disposable incomes begin to rise and inflation decreases. The RBA’s forward guidance is expected to sound cautious and note that future cuts will be data-dependent,” Sycamore said.
“Now a word of warning. A 25bp RBA rate cut this afternoon with cautious forward guidance is widely expected and priced in. The surprise would be if the RBA keeps rates on hold at 4.10%.
“In the event the RBA keeps the rate on hold be prepared for the ASX200 to dive back towards support at 8,440/60 and for the AUD/USD to rip higher towards resistance at .6440/60ish.”
We’ll know the outcome shortly after 2.30 today.
Yesterday, the ASX200 closed 18 points lower (-0.22%) at 8,535, with declines in Energy (-1.51%), Financials (-1.07%) and Telecommunications (-0.32%) sectors weighing on the index. On the upside, Utilities (+1.60%), Consumer Staples (+1.23%) and Real Estate (+0.94%) posted the strongest gains.
The session was the inverse of Friday’s, as the ASX200 rebounded from early losses to close 60 points above the intraday low of 8,480.2.
Early weakness followed soft trading updates from Bendigo Bank and Westpac, which dropped 15.28% and 4.06%, respectively.
Concerns that Opposition Leader Peter Dutton may push for the breakup of insurance firms added further pressure on Financials, with Suncorp sliding 20.97% to A$18.50 — its decline amplified by going ex-dividend. Insurance Australia Group (IAG (LON:ICAG)) also fell 2.82% to A$7.59.
In contrast, A2 Milk surged 19.66% to A$7.12, its highest close in nearly seven months. The rally followed a 7.6% increase in net profit after tax (NPAT) to NZ$91.7 million, alongside its first-ever dividend of NZ$ 8.5 cents per share.
Today’s earnings reports include updates from BHP (ASX:BHP), Challenger, Dexus, Hub24, Seek and Mineral Resources.
US futures rise after holiday closure
US markets remained closed on Monday for the Presidents' Day holiday, though equity futures edged higher.
- Futures tied to the Dow Jones Industrial Average gained 108 points, or 0.2%, while S&P 500 futures rose 14 points, also 0.2%.
- Nasdaq 100 futures climbed 39 points, or 0.2%.
- On Friday, the Dow Jones fell 165 points, or 0.4%, the S&P 500 ended flat, and the Nasdaq gained 81 points, or 0.4%.
European stocks hit record highs
European stock markets reached record closing highs on Monday, driven by strong gains in defence stocks amid expectations of increased military spending.
Investors responded to growing US pressure on European nations to boost defence budgets, while US and Russian representatives were set to meet in Saudi Arabia on Tuesday to initiate potential talks on ending the war in Ukraine.
The aerospace and defence sector led the market, surging 4.6% in its largest one-day gain since Russia's invasion of Ukraine in February 2022. Shares in Italy's Leonardo rose 8.1%, Sweden's Saab jumped 16.2% and Britain’s BAE Systems (LON:BAES) advanced 9%.
German conglomerate Thyssenkrupp (ETR:TKAG) surged 19.8% to a one-year high on plans to spin off its warship unit TKMS, while Rheinmetall (ETR:RHMG) gained 14%, lifting Germany’s DAX index by 1.3% to an all-time high. The banking sector rose 1%, supported by higher bond yields, while real estate stocks slipped 0.8%.
- The pan-European FTSEurofirst 300 index added 0.6%.
- London’s FTSE 100 gained 0.4%.
Currencies, commodities, and metals
Currencies
Currency markets showed mixed performance against the US dollar.
- The euro fell from US$1.0497 to US$1.0466 before recovering to US$1.0480 in late North American trade.
- The Australian dollar dipped from US$0.6373 to US$0.6353 and settled near US$0.6355.
- The Japanese yen strengthened from JPY151.93 to JPY151.32 before stabilising around JPY151.40.
Commodities
Oil prices rose as OPEC+ considered delaying planned supply increases set for April.
- Brent crude gained US48 cents, or 0.6%, to US$75.22 per barrel.
- US Nymex crude rose US65 cents, or 0.9%, to US$71.39 per barrel in after-hours trade. Volumes remained thin due to the US holiday.
Metals
Base metals saw mixed trading in London.
- Copper futures fell 1.8% as traders rolled forward positions ahead of a contract expiry, while aluminium gained 0.8%. US futures markets were closed.
- Gold prices strengthened, supported by a weaker US dollar and trade war concerns. Gold futures rose US$10.50, or 0.4%, to US$2,911.20 per ounce, while spot gold traded near US$2,897 in late North American trade.
- Iron ore prices dipped as concerns over cyclone-related supply disruptions in Australia eased following the reopening of major ports. Singapore-traded iron ore futures fell US33 cents, or 0.3%, to US$106.46 per tonne. However, strong economic data from China helped limit losses. US futures markets were closed for the holiday, with Friday’s close at US$106.83 per tonne.
What about small caps?
The S&P/ASX Small Ordinaries gained 0.59% to 3,254.20 yesterday. Over the past five days, the index has gained 1.27%.
The news is coming in slowly today, but you can read about the following and more throughout the day.