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Aussie shares fell for a second day after the Reserve Bank surprised the market by raising the cash rate target by a larger-than-expected 25 basis points.
The S&P/ASX 200, which was trading just below break-even before the announcement, plunged more than 30 points to a session low. The index ended 31 points or 0.42 per cent underwater at 7316 after dipping below 7300.
Mining and property stocks led the retreat. Tech and healthcare companies resisted the selling.
What moved the market
Shares fell, bond yields jumped and the dollar hopped above 71 US cents after the RBA increased the cash rate target by 25 basis points to 0.35 per cent and signalled further increases to come.
“The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead,” Governor Philip Lowe said.
The first rate hike in more than a decade rattled markets not because it was unexpected but because it was larger than most economists anticipated. A majority of economists polled by Reuters and Bloomberg expected the first increase since 2010 to be a more modest 15 basis points.
The scale of the increase implied the bank was more concerned about inflation than previous policy statements suggested. Headline inflation hit 5.1 per cent last quarter. The core measure favoured by the RBA rose to 3.7 per cent, well above the bank’s target range.
“Inflation has picked up significantly and by more than expected, although it remains lower than in most other advanced economies,” Lowe said.
“A further rise in inflation is expected in the near term, but as supply-side disruptions are resolved, inflation is expected to decline back towards the target range of 2 to 3 per cent,” he added.
“The central forecast for 2022 is for headline inflation of around 6 per cent and underlying inflation of around 4¾ per cent; by mid 2024, headline and underlying inflation are forecast to have moderated to around 3 per cent. These forecasts are based on an assumption of further increases in interest rates.”
The dollar was already on the rise and extended its advance to 0.8 per cent at 71.03 US cents. The yield on ten-year Australian government bonds jumped almost 12 basis points to 3.377 per cent, the highest since 2014.
The US Federal Reserve is expected to follow suit tomorrow night and raise its target rate by at least 50 basis points. Overnight, a final-hour recovery lifted the S&P 500 by 0.57 per cent. The Nasdaq Composite gained 1.63 per cent.
Winners’ circle
Growth stocks rebounded after the Nasdaq’s leading role overnight. Zip Co climbed 5 per cent, Appen 4.56 per cent and Block 4.56 per cent. Pro Medicus put on 3.29 per cent, Megaport 3.17 per cent and Xero 2.03 per cent.
News that blood plasma collection had returned to pre-Covid levels lifted CSL 0.89 per cent. Product demand and margins were expected to return to pre-pandemic levels “over time”.
A positive trading update lifted Domain 3.22 per cent from a 21-month low. The online listings provider told today’s Macquarie Australia Conference that revenues increased 24 per cent last quarter from the prior corresponding period. Digital margins also improved.
A 9.7 per cent improvement in third-quarter sales from the same time last year helped lift Woolworths 0.37 per cent. Ecommerce sales jumped 33.4 per cent as customers switched to online delivery.
Dexus firmed 1.28 per cent after upgrading distribution guidance. The property group forecast distribution per security growth of not less than 2.5 per cent this financial year.
Doghouse
AGL declined 3.13 per cent after Atlassian founder Mike Cannon-Brookes emerged as a major shareholder and vowed to oppose the energy giant’s proposed demerger. The board said it remained committed to implementing the demerger by June 30.
Corporate Travel Management shed 3.26 per cent after warning the Omicron variant slowed its earnings recovery. The firm said it expected a strong final quarter to provide momentum into next financial year.
A blowout in costs dragged Cleanaway down 3.17 per cent. The waste manager said flood damage and higher fuel and labour costs would knock $15-$20 million off earnings.
Kitchen appliance manufacturer Breville Group fell 1.76 per cent to a fresh 22-month low after reaffirming full-year earnings guidance.
Endeavour Drinks declined 1.3 per cent on news the Managing Director of Dan Murphy’s, Alex Freudmann, had resigned to return to the UK.
Aussie Broadband faded 1 per cent despite clarifying yesterday’s earnings guidance did not include input from its recent acquisition of Over The Wire. The telco expects the acquisition to be earnings accretive.
Other markets
A subdued session on Asian markets saw the Asia Dow rise 0.34 per cent. Hong Kong’s Hang Seng added 0.15 per cent. Trade in Japan and mainland China was suspended for a second day for public holidays.
US futures rallied as bond yields backed off overnight highs. S&P 500 futures climbed 16 points or 0.37 per cent.
Oil turned lower in afternoon trade. Brent crude eased 23 US cents or 0.2 per cent to US$107.35 a barrel.
Gold added to its overnight loss, falling US$4.90 or 0.26 per cent to US$1,858.70 an ounce.
