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Australian shares rose for a second day after the Reserve Bank raised its benchmark rate by 50 basis points and exporters caught a boost from a post-lockdown rebound in the Chinese economy.

The RBA raised the cash rate target to 1.35 per cent, as most economists predicted. Today’s increase was the third in three months, a cycle that last happened in 2010.

Gains in resource and tech stocks helped steer the S&P/ASX 200 up 17 points or 0.25 per cent. Property trusts and industrials were the day’s only significant drags.

What moved the market

The ASX 200 built on cautious early gains after the RBA delivered a rate rise in line with market expectations. After being surprised by a 25bp hike in May and a bumper 50bp hike in June, investors were ready for another sharp increase. A majority of economists predicted the scale of today’s rise after strong economic data indicated higher rates had yet to bite.

Governor Philip Lowe said today’s increase was another step towards reducing pandemic support and returning rates to a more neutral setting.

“The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead,” Lowe said.

“The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market. The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”

The increase was prompted by soaring prices. Inflation has punched well outside the bank’s 2-3 per cent target band.

“It’s their third hike in as many meetings which has seen the central bank lift their base rates by 125-bp,” City Index senior market analyst Matt Simpson said.

“Yet with the RBA themselves expecting inflation to rise to 7% by the year end, it remains debatable as to whether the RBA are being aggressive enough. Consumer expectations rose to 6.7% in June and risk becoming anchored, weighing on demand and keep realised inflation high.” 

The dollar cut an early advance to 0.05 per cent at 68.74 US cents after the announcement. The Aussie rose earlier in the session after data showed the Chinese economy rebounded strongly last month as Covid restrictions were lifted.

Caixin’s composite China purchasing managers’ index jumped to 55.3 last month from a May reading of 42.2. Readings above 50 indicate expanding business activity. Iron ore prices in China bounced 2 per cent after the announcement.

Stocks overcame early weakness as a rebound in US equity futures sharpened buying interest. S&P 500 futures rose 16 points or 0.42 per cent following gains in much of Europe last night. The pan-European Stoxx 600 index put on 0.54 per cent as energy producers set the pace. Trade on Wall Street was suspended for the July 4 holiday.

Winners’ circle

Energy producers shone for a second day as a looming strike among oil workers in Norway and a production miss by the OPEC+ oil group lifted energy prices. Woodside Energy gained 3.77 per cent. Santos firmed 0.4 per cent. Beach Energy added 0.57 per cent.

Tech stocks were another pocket of strength as an early rally in bond yields faltered. Life360 jumped 11.34 per cent, BrainChip 10.59 per cent and WiseTech 5.17 per cent.

A record quarter lifted Regis Resources 10.69 per cent. Quarterly production of 123,901 ounces of gold capped a record year for the miner. Annual production was 437,000 ounces.

Westgold improved 5.74 per cent after meeting full-year production guidance. Managing Director Wayne Bramwell described the fourth quarter as “cracking”.

Other gold miners to rise included St Barbara +8.48 per cent, De Grey +6.1 per cent and Gold Road Resources +3.56 per cent.

Bubs Australia entered a trading halt as the infant formula manufacturer took advantage of recent strength in the share price by raising capital. The firm was seeking to raise $63 million by issuing shares at 52 cents, an 18.8 per cent discount to yesterday’s close. Funds raised will be used to support the company’s rapid expansion following a formula shortage in the US.

Doghouse

The biggest heavyweight drags were toll road operator Transurban -1.04 per cent and industrial property giant Goodman -0.96 per cent. ANZ retreated 0.36 per cent, NAB 0.32 per cent and CBA 0.24 per cent.

New lender Judo Bank dipped 0.79 per cent despite beating its FY22 prospectus target of $6 billion in loans and advances. The firm’s closing balance at June 30 was $6.09 billion.

Real estate investment trusts retreated under the threat of higher borrowing costs. Mirvac dropped 2.9 per cent, Stockland 2.68 per cent and HomeCo Daily Needs 2.26 per cent.

Rate-sensitive travel stocks also retreated. Corporate Travel Management shed 0.94 per cent. Flight Centre declined 0.34 per cent.

Other markets

Asian markets turned mixed in afternoon trade. The Asia Dow gained 0.51 per cent. Hong Kong’s Hang Seng crept up 0.18 per cent. Japan’s Nikkei added 0.95 per cent. China’s Shanghai Composite eased 0.63 per cent,

Oil trimmed overnight gains. Brent crude reversed 24 US cents or 0.2 per cent to US$113.26 a barrel.

Gold was ahead US$10.30 or 0.57 per cent at US$1,811.80 an ounce.

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