The Match Out: ASX rallies as the RBA implies they are nearly done!

The market opened lower this morning before a spirited fightback to be trading around par before the RBA announcement at 2.30pm where they hiked rates by the anticipated 0.25% to 3.60%, the 10^th straight increase. However, they removed a key line from the accompanying statement and by doing so, provided a very real glimmer that they are almost done for now.

Bond yields fell, the rate-sensitive 3 years lost 12bps, the Aussie dollar declined and stocks rallied, with the relative sector performances acknowledging what looks to be a very subtle but clear change of tack by our Central Bank.

• The ASX 200 finished up +36pts/ +0.49% at 7336
• The Energy sector was best on ground (+1.21%) while Consumer Discretionary (+1.12%) & Consumer Staples (+0.95%) were also strong – very interesting that consumer sectors rallied on the day of a rate hike, tells an important story here.
• Materials (-0.44%) the only sector to close lower while Utilities (+0.24%) & IT (-0.28%) underperformed.
• This morning we wrote the following on the RBA rates decision, and it felt on point after today’s announcement…. At 2.30 pm today the RBA is expected to hike interest rates by 0.25% to 3.6% – it’s already old news unless we see a change in the hawkish rhetoric from Philip Lowe.
• We did see a change in the rhetoric to a slightly more dovish position which makes total sense to MM. How they have raised rates 10x without pausing to determine the impact is quite extradentary, however, it now seems we are very close to that point in the cycle. More on this below including the key changes to the statement.
• Invocare (ASX: IVC) +34.97% rallied hard today on a bid from private equity goliath TPG. They were originally looking for a 10% stake, willing to pay $12.65 to get it done which represented a 41% premium to yesterday’s close. They ended up with 17% and then launched a full tilt for the company. We don’t own but clearly, this is an opportunistic approach given the recent SP weakness in IVC.
• MegaPort! (ASX: MP1) -14.98% hit a nine-month low after announcing the resignation of its chief executive Vincent English who resigned with immediate effect after six years in charge. No reason was given for the departure with the founder and Chairman Bevan Slattery stepping in as interim chief executive while a replacement is found.
• ALS Limited (ASX: ALQ) -3.68% also lost their CEO today for personal reasons (with immediate effect), although they did a better job of explaining it than MP1.
• Platinum (ASX: PTM) +2.52% rallied from the depths of despair after saying net outflows of approximately $127m were recorded in February. FUM now sits at $18.5bn. We think the sector is deep value here and we own Perpetual (PPT) & Regal Partners (RPL), but not PTM.
• Iron Ore was ~1.7% higher in Asia today supporting Fortescue (FMG) +1.44%
• Gold was flat at US$1848 at our close.
• Asian stocks were okay Hong Kong up +0.86%, Japan +0.28% while China was flat%
• US Futures are all marginally higher.

ASX200

The RBA thinks inflation has peaked

At its meeting today, the Reserve Bank Board decided to increase the cash rate target by 25 basis points to 3.60%.The language used in the statement is considered to be more important than the actual decisions and on this front, the statement is more dovish – talking down inflation and removing the expectation that CPI inflation will rise to 4.75% by the end of 2023. They also seemingly, brought back their focus on monthly CPI.

Here are the main changes in the Statement versus February.

RBA statement changes #1

RBA statement changes #2

Australian 3-year bond yields

Broker moves

• Nanosonics Raised to Overweight at Wilsons; PT A$6
• Bravura Cut to Neutral at JPMorgan; PT 60 Australian cents
• Region Group Raised to Buy at Moelis & Company; PT A$2.85
• Bravura Cut to Neutral at Evans & Partners Pty Ltd
• Sezzle GDRs Raised to Neutral at Jarden Securities
• Cosol Rated New Buy at Ord Minnett; PT A$1.07
• WiseTech Raised to Neutral at Citi; PT A$64.10

Major movers today

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