Australian stocks to fall + How does the ASX 200 perform on RBA rate hike days

ASX 200 futures are trading 41 points lower, down -0.57% as of 8:30 am AEST.

S&P 500 SESSION CHART

MARKETS

• S&P 500 falls, closes near worst levels and down from session highs of 0.40%
• US Treasury to ramp up bill supply this week to rebuild the Treasury General Account, analysts expect US$1tn of new bill issuance over the next few months
• Megacap tech outperformance continues to receive a lot of scrutiny, with the seven largest tech stocks (Apple, Microsoft, Amazon, Nvidia, Tesla and Meta) up 53% year-to-date vs the flat performance for the rest of the index
• TGA rebuild flagged as a drag on liquidity and headwind for risk assets (Bloomberg)
• Saudi Arabia cuts oil production by 1m bpd (Bloomberg)
• Morgan Stanley says pullback in corporate earnings to halt stock rally (Bloomberg)

STOCKS

• S&P 500 companies recorded their best performance relative to expectations in Q1 since Q4 2021 and 20% of companies had a positive view of Q2 earnings
• Global airlines more than double 2023 profit forecast to $9.8bn vs $4.7bn (Reuters)
• UBS considers delaying Q2 results after Credit Suisse rescue deal (FT)
• Apple enters VR race, unveils new augmented reality headset (Bloomberg)
• GM investing more than $1bn to boost production of heavy-duty trucks (CNBC)
• Coinbase tumbled after the SEC sued rivals Binance (CNBC)

ECONOMY

• US service sector softens, factor orders boosted by defence (Reuters)
• Chinese stimulus measures like rate cuts could be off the table for now (Bloomberg)
• China's services sector activity picked up in May (Reuters)
• Eurozone PMI shows euro area growth at three month low (Reuters)
• France averts credit rating downgrade, Macron plans to slash debt (Bloomberg)
• Japan's service sector activity expanded at a record pace in May (Reuters)
  
  

Deeper Dive

RBA Preview: Will they or won't they?

Ask rates traders what they think the RBA will do and they'll firmly say one more and pause. This in itself is already a big change considering not a few weeks ago, they were pricing in no more rate hikes and rate cuts by the end of the year.

But several strong data points, including the ABS Monthly Inflation Indicator and a 5.75% national increase to the minimum wage, are all creating the fuel for an extra rate hike this afternoon at 2:30 pm.

In the meantime, four research houses have been very busy refining their respective terminal rate calls.

• ANZ (4.35%): We have moved our expectation of the terminal RBA cash rate to 4.35%, as we no longer see 4.1% as sufficient to bring inflation back to the target in a reasonable period of time
• TD (4.35%): Last week's outcomes have provided the confirmation needed to make the change of call
• Morgan Stanley (4.35%): We are still firmly of the view that they have more tightening to do

While Citi's Josh Williamson has gone one better, arguing that it is not improbable to see a 4.6% terminal rate (yes, that's THREE more hikes).

ASX 200 on Rate Decision Days

A quick recap of one of the points from Monday's Evening Wrap. The RBA started its hiking cycle last May, so let's take a look at how the market tends to perform on rate decision days (number of occurrences against expectations and average performance).

• Larger-than-expected (3): -0.95%
• In-line (8): +0.13%
• Smaller-than-expected (1): +3.48%

On 2 May, the RBA hiked by 25 bps to 3.85% vs. expectations of a pause. The ASX 200 sold off pretty hard on the news at 2:30 pm AEST and fell as much as 2.6% over the next three sessions (inclusive of the rate decision date).

Consensus still expects the RBA to pause but as we note above, it feels like anything is possible.