RBAs Lowe says rate hike unlikely in 2022, ASX closes 0.7% lower

Market Reports

by Melissa Darmawan

The Australian sharemarket snapped its 2-day winning streak, its worst performance in over two weeks as investors digested the RBA’s meeting minutes after Wall St’s muted finish. At the closing bell, the S&P/ASX 200 was 0.7 per cent or 50 points lower at 7,420.

Rising bond yields on Wall St transcended in the same way in our bond market following news that broke last week that US inflation tipped its highest level in more than 30 years. This saw the greenback rise which put pressure on commodity prices.

The local bourse closed at its lowest level of the session after the minutes from the Reserve Bank and a speech took a bit of attention.

The RBA’s minutes from its policy meeting at the start of November showed that the central bank shrugged off September-quarter inflation data which triggered a surge in bond yields as markets priced interest rate hikes.

The bank reaffirmed its view that inflation "remained low in underlying terms”, while any acceleration “would be only gradual” with wages growth was still “subdued”. With reference to the interest rate rise necessary before 2024 to remain "plausible".

So no surprises there, as policymakers indicated that the current pace of quantitative easing was appropriate, the cash rate would stay at 0.10 per cent until 2024 or till wages and inflation targets are met.

While the speech after the release of the minutes from Governor Philip Lowe reiterated this. Dr Lowe said that “the economy and inflation would have to turn out very differently from our central scenario for the board to consider an increase in interest rates next year.”

Adding that, “the latest data and forecasts do not warrant an increase in the cash rate in 2022”.

Dr Lowe emphasised that wages would have to rise to above 3.0 per cent in order to sustain inflation between the range of 2.0 - 3.0 per cent, with wage growth being only one factor that would influence rate policy.

Governor Philip Lowe is attempting to reset market expectations which appear to be more hawkish than the central bank. The markets have priced in at least three rate hikes in 2022. It seems that there is a disconnect between the central bank’s guidance and market expectations, and the trajectory looks like it will continue this way.

However, if fresh economic news points to a surge in inflation, like our counterparts in the US, the central bank may need to readjust their tune on inflation, and reflect if it's really transitory or persistent.

The XJO saw a decline as iron ore players pressured the index as the price of the steel-making commodity dipped, with only information technology closing higher, marginally lifted by Afterpay (ASX:APT) jumping 1.7 per cent. With volumes on the lighter side, it appeared that investors were being more on the cautious side.

BHP (ASX:BHP) and Rio Tinto (ASX:RIO) fell in the 2.0 per cent range while Fortescue Metals (ASX:FMG) shed 0.3 per cent.

Woodside (ASX:WPL) chief financial officer Sherry Duhe has stepped down to take up the CFO role at gold miner Newcrest (ASX:NCM) early next year. Woodside shares fell 0.8 per cent while Newcrest (ASX:NCM) dropped 1.0 per cent.

Elsewhere, major banks fell with National Australia Bank (ASX:NAB) shedding the most, down 0.6 per cent after trading ex-dividend yesterday.

Chalice Mining (ASX:CHC) continued to climb after their discovery of the largest nickel sulphide deposit in over 20 years last week, notching the title as the best performer of the session.

Mesoblast (ASX:MSB) switched position to the worst performer of the session after being the best on Monday. The catalyst for its surge was due to the drug developer releasing positive phase three trial results on one of its cellular medicines at the American Heart Association annual meeting. The specialised drug is used to fight inflammation in heart attack and stroke victims.

Meanwhile, consumer confidence fell 2.8 per cent last week, its lowest value since early October according to ANZ-Roy Morgan.

Company news

Join Lauren for Stocks of the Hour where she covers the moves from Imugene (ASX:IMM), Beach Energy (ASX:BPT), and Woodside Petroleum (ASX:WPL).

Futures

The Dow Jones futures are pointing to a rise of 3 points.
The S&P 500 futures are pointing to a rise of 1 points.
The Nasdaq futures are pointing to a rise of 8 points.
The SPI futures are pointing to a fall of 52 points when the market next opens.

Best and worst performers

The best-performing sector was information technology adding 0.2 per cent while the worst-performer was materials down 1.7 per cent.

The best-performing stock in the S&P/ASX 200 was Chalice Mining (ASX:CHN), closing 3.7 per cent higher at $10.33, followed by shares in Virgin Money UK (ASX:VUK) and Nextdc (ASX:NXT).

The worst-performing stock in the S&P/ASX 200 was Mesoblast (ASX:MSB), closing 8.7 per cent lower at $1.74, followed by shares in Pendal Group (ASX:PDL) and Kelsian Group (ASX:KLS).

Asian markets

Japan's Nikkei has gained 0.04 per cent.
Hong Kong's Hang Seng has gained 1.4 per cent.
China's Shanghai Composite has gained 0.3 per cent.

Commodities and the dollar

Gold is trading at US$1866.74 an ounce.
Iron ore is 0.7 per cent lower at US$89.15 a ton.
Iron ore futures are pointing to a fall of 0.9 per cent.
Light crude is trading $0.54 higher at US$80.29 a barrel.
One Australian dollar is buying 73.58 US cents.

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