ASX 0.68% lower at noon as the RBA considers 0.5% rise

Market Reports

by Peter Milios

The Reserve Bank of Australia considered raising the cash rate by 0.5 percentage points due to concerns that high inflation may persist, leading to higher interest rates and increased unemployment.

However, it ultimately decided to increase the cash rate by 0.25 percentage points to 3.35 per cent. The decision was based on the need to bring demand and supply in the economy into balance, as well as expectations that inflation had peaked and would fall within the target range by mid-2025.

In company news, BHP (ASX:BHP) will pay a US90c per share interim dividend after booking a net profit of $US6.46bn in the first half of the year due to lower iron ore prices. The company reported an underlying net profit of $US6.6bn, with expectations for higher profits, and the CEO remains positive about the demand outlook for the second half of the year, particularly in China and India.

At noon, the S&P/ASX 200 is 0.68 per cent lower at 7,301.30.

The SPI futures are pointing to a fall of 40 points.

Best and worst performers

The best-performing sector is Energy, up 0.06 per cent. The worst-performing sector is REITs, down 1.34 per cent.

The best-performing large cap is BlueScope Steel (ASX:BSL), trading 3.14 per cent higher at $18.40. It is followed by shares in Pilbara Minerals (ASX:PLS) and IGO (ASX:IGO).

The worst-performing large cap is Altium (ASX:ALU), trading 5.93 per cent lower at $37.63. It is followed by shares in Mercury NZ (ASX:MCY) and BHP Group (ASX:BHP).

Asian markets

Asia-Pacific markets are set to fall on Tuesday as investors await regional private surveys for factory activity. In Japan, the Nikkei 225 fell 0.16 per cent and the Topix was marginally lower ahead of the au Jibun Bank Flash Japan Manufacturing PMI. South Korea’s Kospi also fell 0.2 per cent while the Kosdaq traded fractionally higher.

Bearish talking points for the week

Disinflation momentum dented by largely in line CPI and hotter PPI prints for January. Stronger than expected January retail sales also played into Fed's higher-for-longer and upside peak rate risk messaging. These dynamics helped drive a meaningful repricing of peak rate and 2H rate cut expectations. In addition, two-year yields up over 50 bp in just the last couple of weeks. JPMorgan noted that the move in the two-year over the last few days implied a Nasdaq that should be ~5 per cent lower. Fed's Mester said she saw a compelling case for 50 bp in February and Bullard said he would not rule out a 50 bp hike in March. Brainard leaving Fed to go to NEC removes big dovish influence on policy. Biggest w/w reduction in Fed balance sheet assets since last November. Citi said one-off liquidity injections have been driving the market rally to an end. Sentiment/positioning tailwind fading with AAI bull-bear spread positive consecutive weeks for first time since November 2021 and 12-day short-covering in tech, the second largest in the past decade (per Goldman Sachs). Quality concerns surrounding equity market leadership (Reddit/Meme/Robinhood/long duration/unprofitable names).

Bullish talking points for the week

Positive macro surprise momentum with Citi US economic Surprise Index highest since late April of 2022 and up ~60 points in just the last month. Goldman Sachs cut its US recession odds from 35 per cent to 25 per cent, less than half the 65 per cent consensus. Bank execs talked up consumer health and better soft landing odds. Not all firms bearish on earnings as Citi noted estimates reset further along than realised, largely pricing in an earnings recession already. Fedspeak leaned hawkish but nothing explicit in terms of need for upward dot plot shift and rate repricing in line with Fed guidance. Dampened disinflation momentum evident in both hard and soft data this week though inflation expectations are still well anchored (three-year lowest since October 2020, below 10-year average). In addition, Walmart and other grocers are pushing back against suppliers on price increases while Kraft Heinz said this week it is not planning on additional price hikes this year. Despite big rate backup, bond volatility as measured by MOVE Index has been relatively subdued (though back above 100), a dynamic supportive for risk appetite. BofA February Global Fund Manager Survey noted investors still net 31 per cent underweight equities, leaving pain trade to the upside.

Company news

There has been an off-market takeover offer to acquire 100 per cent of New Century Resources (ASX:NCZ) at a best and final price of A$1.10 cash per share by US-listed Sibanye-Stillwater. The offer represents around a 43 per cent premium on yesterday’s closing price of $0.77. Shares are trading 42.9 per cent higher at $1.10 at noon.

Aston Minerals (ASX:ASO) has announced the delineation of a maiden nickel-cobalt sulphide Mineral Resource Estimate across Boomerang. In response, Managing Director, Dale Ginn, commented, “The Boomerang Resource is now confirmed as one of the world’s biggest nickel-cobalt deposits.” Shares are trading 2.3 per cent higher at 9 cents at noon.

GTI Energy (ASX:GTR) has announced that they have secured a significant new uranium project in Wyoming. In response, GTI Executive Director Bruce Lane commented, “The project is located in Wyoming’s most prolific production district [and this] has the potential to become a significant asset for GTI as we continue to build and diversify our Wyoming uranium portfolio.” Shares are trading 9.1 per cent at 1.2 cents at noon.

Commodities and the dollar

Gold is trading at US$1782.70 an ounce.
Iron ore is 1.8 per cent higher at US$129.55 a tonne.
Iron ore futures are pointing to a 3.2 per cent rise.
One Australian dollar is buying 68.98 US cents. 

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