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Australian shares suffered their heaviest loss in more than three weeks after the Reserve Bank raised its benchmark rate by 50 basis points to 0.85 per cent.

The dollar jumped and shares slumped when news of the bumper hike was released.

The S&P/ASX 200 dived 111 points or 1.53 per cent to 7096, its weakest close since May 19. Today’s loss was the largest since a 124-point plunge on May 12.

All 11 sectors declined. Tech firms, property stocks and BNPL providers were among the biggest drags. Just ten companies on the benchmark index gained more than 1 per cent.

What moved the market

The Reserve Bank demonstrated it was serious about addressing rising inflation by delivering the first 50 basis point increase in the cash rate target since 2000. Today’s increase follows a 25 basis point increase at last month’s meeting.

The board said it expects to hike again in the months ahead. The size and timing of future increases will be guided by economic data and the outlook for inflation and jobs.

“Inflation in Australia has increased significantly. While inflation is lower than in most other advanced economies, it is higher than earlier expected,” Governor Philip Lowe said.

“Today’s increase in interest rates will assist with the return of inflation to target over time,” he added.

Today’s hike was at the upper end of market expectations. Just three of twenty-nine economists correctly predicted the size of the move. The reason for the jumbo increase seemed to be that the central bank felt the outlook for inflation had shifted significantly since its last meeting.

“Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago,” Lowe said.

Stocks were under pressure before the announcement, but doubled their fall in its wake. The dollar jumped above 72 US cents before fading 0.1 per cent to 71.79 US cents.

City Index senior market analyst Matt Simpson said the 75 basis point increase across the last two meetings was the most aggressive interest rate move in RBA history.  

“I really think the RBA have restored some credibility today by coming out swinging – they may have taken a leaf from RBNZ’s book, but it needed to be done with inflation running so hot,” he said.

Reports this morning underlined the impact of rising prices on both consumers and businesses. The ANZ-Roy Morgan consumer confidence index fell 4.1 per cent last week to its lowest since mid-August 2020. Roy Morgan’s business confidence measure dived 9.1 points to a level last seen in October 2020.

US stocks rose overnight, but finished near session lows as rising yields dampened buying interest. The Dow slashed a 300+ point rally to just 16 points or 0.05 per cent. The S&P 500 gained 0.31 per cent.

Winners’ circle

Miners provided some of the best gains on a day when winners were scarce and decent increases scarcer still. Sandfire Resources firmed 3.36 per cent. Lynas Rare Earths added 1.5 per cent. At the heavyweight end, Rio Tinto added 0.67 per cent and Oz Minerals 0.79 per cent.

Mining services provider Perenti jumped 10.07 per cent after winning a contract worth $520 million and announcing a share buyback. Perenti will perform underground development and production works at Evolution Mining’s Cowal project in NSW. The firm will also buy back up to 10 per cent of shares on issue on-market.

Fund manager Magellan bounced 2.1 per cent off yesterday’s eight-year low. Janus Henderson put on 2.07 per cent. Other notable rises included Inghams +3.2 per cent, Ampol +2.42 per cent and Viva  Energy +2.39 per cent.

Doghouse

Buy now, pay later players sank after Apple launched its own offering, called Apple Pay Later. The service will be built into Apple Pay and come with iOS 16.

Zip Co skidded 14.38 per cent. Splitit shed 12 per cent, Hum 3.09 per cent and Afterpay parent Block 2.89 per cent.

Rate-sensitive growth stocks bore the brunt of today’s RBA announcement. Clinuvel Pharmaceuticals dropped 6.71 per cent, Ingenia 5.67 per cent and Megaport 5.56 per cent. WiseTech coughed up 5.25 per cent and Xero 4.97 per cent.

A tax refund helped cushion Telix Pharmaceuticals against broader market pressure. The biopharma received a $17.25 million refund under a federal research and development incentive scheme. Shares in the firm dipped 0.48 per cent.

At the pointy end, retail conglomerate Wesfarmers gave up 3.86 per cent. Property giant Goodman lost 3.71 per cent, toll road operator Transurban 3.03 per cent and Woolworths 1.95 per cent. The big four banks shed between 1.5 and 3.25 per cent.

Growth in funds under management lifted GQG Partners before a late morning fade. The boutique asset manager increased FUM by 4.6 per cent to US$94.6 billion last month. The share price was eased 1.22 per cent.

Other markets

A mixed session on Asian markets saw the Asia Dow lose 1.1 per cent. Hong Kong’s Hang Seng shed 1.01 per cent. China’s Shanghai Composite dipped 0.07 per cent. Japan’s Nikkei added 0.08 per cent.

US futures deteriorated steadily during Asian trading hours. S&P 500 futures were recently down 31 points or 0.75 per cent.

Oil rallied back above US$120 a barrel. Brent crude climbed 68 US cents or 0.57 per cent to US$120.19 a barrel.

Gold eased for a third session, down US$1.40 or 0.1 per cent to US$1,842.30 an ounce.

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