The Match Out: ASX storms higher as RBA lifts rates another 0.25%, less than some predicted

The market got the bit between its teeth this morning and rallied nicely from around 11am up ~65points before the RBA decision at 2.30pm where the board raised the cash rate by 0.25% to 2.85%, inline with most expectations, although there was some high profile outliers calling for 0.50%. Post the decision, buyers only became more concentrated and on a day where Victoria was enjoying a cold public holiday and many desks around the country where unattended, buyers were met with little resistance and the ASX stormed 1.65% higher, proving MM’s call of 6900 on a 25bps hike simply too conservative.

• The S&P/ASX 200 added +113 points / +1.65% to close at 6976
• Buying was broad based, however Materials (+2.64%), Utilities (+2.53%) & Real-Estate (+2.12%) were the standouts.
• Communications (+0.54%), Healthcare (+1.08%) and Staples (+1.13%) underperformed the strong market, but all sectors made gains.
• There was a buy on close order (commonly called an MOC) today with the ASX jumping +22 points in the Match – it’s bullish and generally offshore buyers.
• AMP now forecasting rates to peak at 3.1% and stay stable through 2023 – that is about 80bps lower than where interest rate futures imply.
• They say another 25bps hike in December then a pause. At MM, we think 15bps is a good chance and hope that will be the case as slightly OCD on these odd numbers!
• ANZ on the other hand still thinks rates to peak at 3.85% in May23 which is more aligned with current market pricing.
• ReadyTech (ASX: RDY) +27.78% attracts private equity interest with a conditional $4.50 bid being discussed.
• EML Payments (ASX: EML) +30.86% recovered some of yesterdays losses.
• Stocks catching our eye across MM Portfolios today: Aussie Broadband (ABB) +6.84%, Audinate (ASX: AD8) +5.88%, Sandfire Resources (ASX: SFR) +4.02%, AGL Energy (ASX: AGL) +4.55% and back up through $7, Goodman Group (ASX: GMG)+3.82%, Pendal (ASX: PDL) +3.06% and Centuria (ASX: CNI) +3.86%.
• Always good to watch those stocks lagging on a bullish day, and we have a few frustrations in Ramsay Healthcare (ASX: RHC) +0.03% & Metcash (ASX: MTS) -0.24%.
• A few downgrades across the board today for IGO limited (IGO) +0.33% following their quarterly update yesterday – it was fine but some delay in realising cash receipts.
• The Aussie Dollar was marginally higher following todays rate decision settling 64.17c at our close.
• Iron ore was higher in Asia – Iron Ore stocks bounced.
• Gold was trading $US1638/oz
• Asian stocks had a bullish session, Hang Seng bounced +3.68%, the Nikkei in Japan was up +0.25%, while China rallied 2.4%
• US Futures are up, circa 0.5%

The RBA hikes by 25bps

As most economists and MM forecast, the RBA increased the cash rate by 0.25% to 2.85% today, and have now raised interest rates by 2.75% over 7 months. It seems clear that the RBA are nearing a point of reflection (not inflexion!), with a final hike in December likely before they step back and see how the lag effect on this aggressive path of monetary tightening plays out. Key points from todays decision include:

• The RBA raised the cash rate target to 2.85%, in line with our expectation and the consensus forecast.
• The RBA continued to signal further tightening, with a focus still on labor costs and firms’ price-setting behavior over the period ahead.
• They lifted their near-term inflation outlook, now seeing inflation peak around 8% in 2022 (versus 7.75% previously).
• However, they did leave their medium-term projection alone and this is a key input into their decision-making -- forecasting inflation will return to “a little above 3% over 2024”.
• The RBA trimmed its growth outlook, now expecting the economy to grow 3% in 2022 (versus 3.75% in August), followed by expansions of 1.5% in 2023 and 2024 (1.75% in August).
• The weaker growth and a flat-lining labor market prompted the RBA to bring forward its forecast for a lift in the unemployment rate to 4.0% in 2024 (previously end of 2024) – up from 3.5% currently.
• Current pricing in markets still seems too aggressive, with a cash rate of 3.9% priced in by 2H23.

Broker Moves

• Codan Cut to Hold at Taylor Collison
• Origin Energy Raised to Accumulate at CLSA; PT A$5.91
• IGO Cut to Hold at Jefferies; PT A$16
• Regal Partners Ltd Rated New Buy at Shaw and Partners; PT A$5.88
• IGO Cut to Neutral at Citi; PT A$15.20

Enjoy your night
The Market Matters Team

Make informed investment decisions

At Market Matters, we write a straight-talking, concise, twice daily note about our experiences, the stocks we like, the stocks we don’t, the themes that you should be across and the risks as we see them. Click here for your free trial.

The Match Out will be available each day after the market close. Follow my profile to be notified when the latest report is live.