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The share market exhibited few nerves ahead of a likely rate rise this afternoon, rising for a second day despite overnight declines in European stocks during a US market holiday.
The S&P/ASX 200 firmed four points or 0.05 per cent by mid-session.
The Reserve Bank met this morning and was expected to raise the cash rate target by 50 basis points this afternoon to 2.35 per cent.
Tech and property stocks led the advance. The energy sector was boosted by a production cut by the OPEC+ oil cartel. The defensive utilities and healthcare sectors retreated.
What’s driving the market
The market trimmed last week’s heavy loss as investors took advantage of low volumes and the unlikelihood of a rates surprise this afternoon. With Wall Street taking a long weekend, yesterday’s trading volume of 736 million was the weakest since mid-July.
The odds on a 50 bp rate hike this afternoon were a near-certainty at 83 per cent, according to the ASX’s tool for assessing the outlook. An increase of that scale would be the fourth in a row and would bring the cash rate target close to the bank’s stated “neutral” level of 2.5 per cent.
Economists expect the pace of increases to slow after today, following five straight hikes.
“We expect smaller 25bps increments in cash rates as rates move above neutral into a slightly restrictive setting of 2.85 per cent by November, at which time we expect the RBA to hold rates at least until February, as it assesses the impact of previous tightening, given the known lags in policy,” NAB told clients.
The dollar rallied 0.18 per cent this morning to 68.23 US cents. Clifford Bennett, chief economist at ACY Securities, does not expect the rebound to last.
“Even with a 50-point rate hike, the Australian dollar yield deficit to the US dollar is simply confirmed to be getting even wider. It is simple math. Fed hiking 75. RBA hiking 50. Expect the Australian dollar, in a slowing world economy, to go backwards,” Bennett said.
“My forecast remains as it has since December, that the AUD will fall to 65 this year, risk 58 next year.”
Australians are growing less fearful about the future, according to the weekly ANZ/Roy Morgan consumer confidence survey. The confidence index ticked up 1.3 per cent last week to its highest since early June, but remained well below the long-term average.
“The recovery in consumer confidence is encouraging, but it remains in very negative territory despite the lowest unemployment rate in decades,” ANZ’s head of Australian economics, David Plank, said.
With Wall Street closed overnight for Labor Day, attention swung to Europe. The pan-European Stoxx dropped 0.62 per cent after Russia’s state-backed Gazprom failed to restore gas supply to Europe following maintenance.
Going up
Lithium miners were boosted by a round of broker upgrades. Pilbara Minerals jumped 5.41 per cent to an all-time high after Jefferies raised its price target. Allkem gained 3.86 per cent after retaining its ‘Outperform’ rating at Macquarie. Lake Resources put on 5.68 per cent, Liontown 4.94 per cent and Core Lithium 6.62 per cent.
The tech sector firmed 1.25 per cent towards its first gain in four sessions. EML Payments added 5.23 per cent, Megaport 5.65 per cent and BrainChip 3.11 per cent.
At the heavyweight end of the market, Fortescue Metals advanced 0.55 per cent, Goodman Group 0.48 per cent, Wesfarmers 0.47 per cent and Telstra 0.39 per cent.
Energy producers struggled to retain their early gains after the Organization of the Petroleum Exporting Countries and allies announced plans to cut oil production from next month by 100,000 barrels a day. The announcement followed recent pressure on crude prices amid doubts about global growth.
Santos gained 0.13 per cent. Woodside Energy gave up early gains to trade unchanged.
Going down
Fund manager Magellan dropped 0.96 per cent to a seven-week low as clients continued to pull investments. The business reported net outflows of $1.3 billion last month. Funds under management contracted to $57.6 billion from $60.2 billion in July.
Incitec Pivot retreated 3.79 per cent after outlining further details of its plan to divide its explosives and fertiliser businesses into separately listed companies. The firm told an Investor Day that earnings were benefitting from a favourable commodity cycle, but the fertiliser business had been impacted by higher gas costs and lower demand.
The biggest drags this morning were Rio Tinto -1.23 per cent, James Hardie -0.68 per cent, Macquarie Group -0.54 per cent and Newcrest -0.52 per cent.
CSL eased 0.2 per cent as its shares traded without the right to a dividend payment of almost $1.68 per share.
Among other stocks trading ex-dividend, Clinuvel dropped 0.76 per cent, Origin Energy 1.88 per cent, BlueScope Steel 1.82 per cent, Sonic Healthcare 2.93 per cent, Northern Star 1.87 per cent, Nickel Industries 2.7 per cent and Super Retail Group 5.24 per cent.
Other markets
US futures continued to build ahead of the resumption of trade tonight. S&P 500 futures climbed 18.5 points or 0.47 per cent.
The Asia Dow firmed 0.18 per cent during a subdued morning on Asian markets. China’s Shanghai Composite advanced 0.51 per cent. Hong Kong’s Hang Seng shed 0.35 per cent. Japan’s Nikkei dipped 0.02 per cent.
Oil trimmed two days of solid gains. Brent crude retreated 94 US cents or almost 1 per cent to US$94.80 a barrel.
Gold kicked higher. The yellow metal popped US$6.30 or almost 0.4 per cent to US$1,728.90 an ounce.
