ASX has best day in three months on RBA rate call; banks rally
Key Posts
Copper breaches $US10,000 Again as Goldman Sees ‘stockout’ risk
ASX jumps 1.4pc after RBA rate decision; banks, AGL rally
Bullock says she gave no ‘impression’ of rate cuts this year
Financial conditions are ‘restrictive’ on households: RBA
Bullock says balance of probabilities haven’t shifted ‘dramatically’
Bullock says recent data makes RBA more ‘vigilant’
ASX jumps 1.4pc after RBA rate decision; banks, AGL rally
Australia’s sharemarket had its best session in three months on Tuesday after the Reserve Bank left the cash rate unchanged as widely predicted by economists and traders.
The benchmark S&P/ASX 200 Index climbed 110.9 points, or 1.4 per cent, to 7793.3 at the closing bell, with all 11 sectors recording gains. That’s the best one-day performance since February 2. The All Ordinaries jumped by the same amount.
While the central bank was widely expected to keep the cash rate on hold at a 12-year high of 4.35 per cent, most economists had anticipated the RBA would resume a stronger tightening basis after hotter-than-expected inflation data last month.
The central bank sharply revised its inflation forecast to 3.8 per cent by December from 3.2 per cent, in line with expectations.
A neutral tone
Perpetual’s head of investment strategy Matt Sherwood said equities reacted positively off the more “neutral” tone of communication from the RBA. “It didn’t seem like there was a hawkish echo within the statement,” he added.
The Australian dollar slipped to US66.10¢ from US66.25¢ after the policy decision and bond yields fell.
The big four banks rallied on the day, with index heavyweight Commonwealth Bank jumping 2.1 per cent to $119. National Australia Bank climbed 1 per cent to $34.14 and Westpac added 2.8 per cent to $27.89.
ANZ shares pared earlier losses and finished higher 0.1 per cent to $28.79. That’s despite the bank recording a 7 per cent decline in cash profit at $3.55 billion in its first-half results. It also announced a $2 billion share buyback and declared an interim dividend at 83¢ per share, partially franked at 65 per cent.
Other interest rate sensitive sectors were also in the green, with technology stocks advancing 1.5 per cent. WiseTech increased 2.3 per cent to $96.43 and TechnologyOne added 1.9 per cent to $16.20.
Real estate stocks also advanced, with Stockland advancing 2.9 per cent to $4.58 and Goodman Group climbing 1.2 per cent to $34.38.
But it was the utilities sector that was the best performer on the ASX, rallying 2.8 per cent.
That’s after sector heavyweight AGL Energy jumped 7.4 per cent to $10.01 after the energy provider upgraded its full-year profit guidance. It’s forecasting underlying earnings before interest tax depreciation and amortisation to be between the range of $2.12 billion and $2.2 billion for the 2024 financial year.
In commodities, energy stocks tracked a higher oil price after Israel rejected a cease-fire proposal for the Gaza strip. Global benchmark Brent pared an earlier advance but was still pushing toward $US84 a barrel. Woodside Energy increased 1.9 per cent to $27.84 and Ampol rose 1.2 per cent to $36.
BHP, which accounts for around 10 per cent of the ASX, rallied 1.6 per cent to $43.42.
Stocks in focus
Global agriculture merchant Louis Dreyfus has increased its takeover offer for Namoi Cotton to 67¢ a share, up from a previous 60¢ a share bid. Namoi shares added 1.4 per cent to 73¢.
Shares in Sims slumped 6.4 per cent to $11.06 after the company issued a major profit warning. Broker RBC Capital said the ASX listed company would miss guidance by 90 per cent.
HMC Capital rallied 6.8 per cent to $6.90 after the alternative asset manager said in a Macquarie conference presentation that its operating earnings per share for financial year 2024 were tracking 21 per cent higher at 40¢.
Copper breaches $US10,000 Again as Goldman Sees ‘stockout’ risk
Copper powered through $US10,000 a tonne as investors raised bets on Federal Reserve rate cuts, and Goldman Sachs warned of intensifying supply stress.
Metals joined a wider rally in risk assets after soft US jobs data triggered renewed speculation that the Fed will move to lower rates this year. Copper rose as much as 2.1 per cent, returning to five digits again after a brief period in late April.
The prospect of Fed easing is adding to tailwinds for copper as bulls predict further gains with the world’s mines struggling to match growing demand. Goldman raised its year-end price target to $US12,000 a ton from $US10,000 previously.
“We continue to forecast a shift into open-ended and mounting metal deficits from 2024 onwards,” the bank’s analysts including Nicholas Snowdon wrote in a note. There’s potential for a “stockout episode” – in which inventories run extremely low – by the fourth quarter, they said.
In the US, swaps markets now point to a 53 per cent chance of a Fed rate cut by year-end, up from about 40 per cent at the end of April. And in China, financial markets have returned from an early-May public holiday in a bullish mood on government pledges to boost growth.
Copper is up 17 per cent in 2024 amid signs of recovery in global factory activity, as well as flashes of supply tightness – especially for raw materials shipped to smelters.
Copper was 1.4 per cent higher at $US10,043.50 a tonne on the London Metal Exchange as of 1:26 p.m. in Shanghai, while aluminum, tin and zinc also climbed more than 1 per cent. Iron ore futures in Singapore fell 1.2 per cent to $US118.15 a tonne.
Bullock says she gave no ‘impression’ of rate cuts this year
The RBA governor Michele Bullock says she “hopes” households will not have to stomach further rate increase.
“What we are really trying to do is slow things enough to bring inflation down, without tipping the economy into recession. That’s what we’re trying to do,” Bullock said at the media briefing, before conceded that it was “frustrating” that it was taking longer to get inflation back down to target.
“We do feel we’re on the right path.”
She also said she did not believe that she had given “any impression” that there would be an interest rate cut by the end of the year.
“I’m very cautious about suggesting any particular rate increases or decreases for that reason,” Bullock said.
“Part of the reason [households] are struggling is not just interest rates ... it’s inflation and the best thing that I can do for them is to try and get inflation back down, so that they don’t have to worry about the prices of their everyday things continuing to go up.
“That’s the best thing I can do for them. I understand the interest rates hurt, but that’s the tool I’ve got and that’s the best thing I can do for them.”
Financial conditions are ‘restrictive’ on households: RBA
RBA governor Michele Bullock says financial conditions are restrictive enough despite the strength in equities, housing, and bank loans.
“We think that financial conditions are particularly restrictive on households,” she told the Australian Financial Review at the press conference.
“They’re somewhat less restrictive on businesses; small businesses, I think they’re probably quite restrictive on [them] because they’re quite dependent upon bank loans.”
The governor noted that larger companies were “finding it a smidge easier to ... get finance”.
“There’s a little bit of a dichotomy there,” she said.
“I think we think that currently, the judgment of the board is that financial conditions are restrictive enough to get the desired reduction in inflation.
“But it’s true that it’s much more restrictive on the household sector we think than, particularly on the big, big end of business.”
Bullock says balance of probabilities haven’t shifted ‘dramatically’
RBA governor Michele Bullock says she does not think the balance of probabilities have shifted “dramatically” for the central bank to increase interest rates instead of cutting.
“I don’t think it’s shifted the balance of probabilities dramatically,” Bullock said. “We still think things are reasonably balanced, but the cost on the upside is higher than it is on the downside.”
Bullock says recent data makes RBA more ‘vigilant’
The RBA governor noted that the central bank had not “explicitly” put back in the statement that it may increase interest rates.
“I think if you read the statement, you will see that the board is signalling that they are very alert to the fact that it might be a little bit higher [on inflation], and they’re remaining vigilant on that,” she told the media.
“So, there is still very much that we still use the words and I use them last time as well. We’re not ruling anything in or out because things are uncertain.
“But there is just the recent data have just indicated to us that we need to be a little bit more vigilant on this.”
RBA trying to balance inflation with employment: Bullock
The Reserve Bank governor said the central bank was ” very conscious” of its dual mandate.
“Yes, we’ve got to get inflation down. And if we don’t get inflation down, it ultimately isn’t good for employment. But we are trying very hard to get it down while maintaining employment growth. And that’s the balance where we’re choosing,” she told the media briefing.
“Have we got it right have we got it wrong? We think at the moment we’re probably ok.
The governor added that Australia’s domestic conditions were not the same as domestic conditions in other countries.
“We do have our own domestic conditions to consider … as I said at the moment we think we’ve got it right, but things are uncertain and if we have to move we will.”
Bullock says board discussed raising rates
Governor Michele Bullock says the board discussed raising the interest rate during its two-day meeting.
“Yes that was one of the things that the board discussed. The board did discuss the option of rising interest rates,” Bullock said. “It [also] discussed the option of keeping interest rates where they were.”
“As I said, on balance the board felt that at the moment staying where they are was appropriate,” she said.
Policy is restrictive, but could raise rates: Bullock
“We think policy is restrictive,” the governor said at the press conference. “We don’t think we necessarily have to tighten again – but we can’t rule it out, if we have to, we will.“
That governor said that rates would raise again if the central bank thought “that inflation is going to be persistent and significantly above our forecast, we will tighten again”.
“But the board made the judgment at the meeting, that the right stance at the moment is to stay where we are continue to observe what’s going on. in the economy be data-driven.
RBA’s Bullock: Rates are at ‘right level’
“We believe we have rates at the right level to return inflation to the target range next year,” Reserve Bank governor Michele Bullock said at the RBA media conference on Tuesday.
“But, as we said in the past, getting inflation back to target will take time. And I think the path will likely continue to be bumpy, and we should all be prepared for that.
“As I’ve said before, bringing inflation down, we want to keep employment growing. This is the difficult path that we are trying to navigate.
“Right now, we believe that rates are at the right level to achieve this, but there are risks and this stage the board is not ruling anything in or out.
“We must get inflation back to the target band low and stable in the background. That’s the best thing we can do for all Australians.”
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