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.
- 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
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James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...