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The share market suffered its heaviest loss since the opening session of the year after the Reserve Bank raised official rates to a ten-year high and indicated more hikes are ahead.
The S&P/ASX 200 plunged almost 50 points immediately after the mid-afternoon announcement and finished 35 points or 0.46 per cent in the red.
Slender gains in gold miners and energy producers were comprehensively outweighed by declines across the wider market. Rate-sensitive property stocks were hit particularly hard.
What moved the market
The RBA raised the cash rate target by 25 basis points to 3.35 per cent, as expected, but dashed hopes of any near-term peak in this cycle.
The key phrase in Governor Philip Lowe’s accompanying statement read: “The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary.”
Matt Simpson, senior market analyst at City Index, said, “The two key words here are ‘increases’ and ‘months’, as it implies more than one hike over the coming months. And with rates at 3.35% it means the market pricing and consensus among economists for a terminal rate of 3.6% may not be correct.”
Lowe said underlying inflation during the December quarter was higher than expected at 6.9 per cent. Despite that, the board left its inflation guidance unchanged. Headline inflation is expected to decline to 4.75 per cent by year-end from 7.8 per cent last quarter. The board does not anticipate inflation will fall to the top of its target band until mid-2025.
Alex Joiner, chief economist at IFM Investors, said the RBA’s inflation outlook dashed hopes of rate cuts before year-end: “Such elevated inflation rules out any rate cuts this year,” he tweeted.
Governor Lowe acknowledged the risk of recession as interest rates rise.
“The Board is seeking to return inflation to the 2–3 per cent range while keeping the economy on an even keel, but the path to achieving a soft landing remains a narrow one,” he said.
The dollar bounced back above 69 US cents and bond yields rallied. The Aussie was lately up 0.63 per cent at 69.32 US cents, reversing some of the recent weakness since Friday’s US jobs shock. The yield on ten-year Australian government bonds popped 13 points to a near three-week high of 3.6 per cent,
Today’s rate hike came as economic data underlined the impact of last year’s aggressive rate hikes. Consumer confidence suffered its biggest setback last week since August. The ANZ-Roy Morgan confidence index fell 3.2 points to 83.6 points.
The hawkish rates announcement was the latest in a series of events over the last few sessions that have forced investors to reassess how high global rates may rise this year. Overnight, US stocks retreated for a second session as bond yields rose to reflect a revised expected terminal rate of 5.1 per cent.
The S&P 500 dropped 0.61 per cent to a second-straight loss. The rate-sensitive Nasdaq lost 1 per cent.
Winners’ circle
Newcrest lifted 1.71 per cent amid speculation of a bidding war after Newmont launched a takeover yesterday. The rally persisted even as hopes of a rival bid from the world’s second-largest gold miner, Barrick Gold, dimmed. Barrick CEO Mark Bristow said a deal with Newcrest “doesn’t make sense right now”.
Macquarie Group climbed 0.72 per cent to its highest since May after a strong third quarter kept the banking group on track for a record year. Net profit for the nine months to the end of last year was “slightly up” on the prior corresponding period. Commodities income was expected to be “substantially up” on FY22.
A 6.78 per cent surge in Newcastle coal prices lifted local miners. Whitehaven gained 1.89 per cent, New Hope 3.7 per cent and Coronado 1.89 per cent.
Health insurer Medibank advanced 2.02 per cent after deferring a premium increase for two months. Rival nib holdings put on 1.02 per cent after delaying a 2.72 per cent premium increase until September 1. CEO and Managing Director Mark Fitzgibbon said the firm remained committed to not profiteering from the Covid-19 pandemic.
Software company Nuix surged 43.65 per cent after the Federal Court dismissed a $183 million claim from former CEO Eddie Sheehy.
Doghouse
Transurban eased 0.57 per cent as the departure of long-term CEO Scott Charlton took some of the shine off a distribution upgrade. Charlton will leave at the end of the year after 11 years at the helm.
The toll road operator expects to pay shareholders a full-year distribution of 57 cents per share, four cents higher than prior guidance. The increase follows record first-half traffic volumes and toll revenues.
Strong first-half improvements in revenues and margins briefly lifted Cettire. An “exceptional” half saw the online luxury goods retailer’s gross revenue increase 57 per cent from the prior corresponding period to $242.7 million.
Delivered margin increased 90 per cent. The company said positive trading momentum continued into the new year, with January sales revenue up 80 per cent on the pcp. The share price rallied more than 4 per cent before reversing to a loss of 6.59 per cent.
The prospect of a “materially stronger” second half softened news of a 64.4 per cent slump in first-half earnings at healthcare provider Healius. The diagnostic imaging firm said the result was dented by the end of large-scale Covid testing. The firm saw a late January/early February rebound in revenues. The share price eased 2.93 per cent.
Property investment manager Centuria Capital slid 5.58 per cent after reporting a 34 per cent decline in first-half statutory profit from the prior corresponding period. Operating profit was broadly steady at $58.5 million. The company reaffirmed its full-year guidance.
Automotive accessories retailer ARB slumped 12.39 per cent following yesterday’s soft trading update and a ratings downgrade from Macquarie.
At the heavyweight end of the market, Goodman Group shed 2.3 per cent, Wesfarmers 1.31 per cent and CSL 1.23 per cent.
Other markets
Most Asian markets edged higher. The Asia Dow firmed 0.46 per cent, China’s Shanghai Composite 0.33 per cent and Hong Kong’s Hang Seng 0.84 per cent. Japan’s Nikkei eased 0.09 per cent.
US futures rebounded from two days of stock market losses before paring their advance. S&P 500 futures were lately up three points or 0.08 per cent after earlier rising more than 0.3 per cent.
Oil built on last night’s 1.3 per cent rally. Brent crude climbed 75 US cents or 0.93 per cent to US$81.74 a barrel.
Gold rose for a second day, advancing US$6.10 or 0.32 per cent to US$1,885.60 an ounce.
