Outsized interest rate hike spooks ASX, closes 1.5% lower

The cost of living is set to rise after the Reserve Bank of Australia (RBA) raised the cash rate by 50 basis points versus the expected 40, sending the ASX 200 to a three week low, while lifting bond yields and sending the Aussie dollar soaring against the greenback.

At the closing bell, the S&P/ASX 200 was 1.5 per cent or 111 points lower at 7,096.

The central bank said that the size and timing of future rate hikes is dependent on incoming data and its assessment of inflation and the labour market outlook. The RBA also noted the spike in gas and electricity prices means that cost pressures in the near-term are likely to be higher, reiterating that it will do what is needed to bring the inflation rate down to its target of two to three per cent.

The RBA emphasised the strength of the labour market while at the same time restating that consumption is a source of uncertainty given the pressures from inflation and interest rates and that it will be paying close attention to these drivers.

Interest rate sensitive sectors such as property, information technology, consumer discretionary and financials led the fall, losing up to 3 per cent each. Materials, and energy both shed the least, with losses limited to 0.3 per cent.

Buy now, pay later company Zip Co (ASX:ZIP) was the big loser of the session, tumbling 14.4 per cent to a four-year low of 65 cents amid news that Apple unveiled its entry into a fee- and interest-free instalment payment option via Apple Pay. National Australia Bank (ASX:NAB) fell the most among the big four banks by 3.3 per cent to $30.10.

Sandfire Resources (ASX:SFR) was the best performer, closing 3.4 per cent higher at $5.85. Other stocks to buck the trend and post gains included Lake Resources (ASX:LKE), which jumped 3.9 per cent to $1.46; Magellan Financial (ASX:MFG), which rebounded 2.1 per cent to $13.21; and Rio Tinto (ASX:RIO), which rose 0.7 per cent to $116.55.

Local economic news

The cost of living, inflation and rising interest rates all continue to weigh on Australian consumers, with the latest ANZ-Roy Morgan index showing that sentiment dropped 3.7 points in the latest week to 87, its lowest reading since August 2020. The survey further revealed that fewer Australians felt better off financially, with less than a third expecting to be better off in 12-months time.

Australia’s energy crisis is set to worsen, with consumers set to face a bill shock from July as electricity retailers move to sharply raise offer rates. The federal government said there is no quick fix to the crisis with treasurer Jim Chalmers warning families to brace for a difficult and expensive winter. Mr Chalmers also downplayed the prospects for more one-off payments and energy rebates given budget deficit concerns.

Company news

Yancoal’s (ASX:YAL) independent board committee has rejected the $2.5 billion takeover offer from Yankuang Energy, the coal miner’s major shareholder. The deal unveiled on May 30 proposed to buy the remaining 37.7 per cent stake that Yankuang Energy doesn’t own at $5.04 a share (US$3.60), which is a 21 per cent discount to the last traded price of $6.08 a share the prior session. Shares closed 4.2 per cent higher to $5.66.

GQG Partners’ (ASX:GQG) funds under management (FUM) rose 4.6 per cent in May over the month to $94.6 billion. The global investment manager attributed its growth from four of its portfolios with international equity contributing almost 34 per cent. Shares closed 1.2 per cent lower to $1.62.

Telix Pharmaceuticals (ASX:TLX) has received a $17.3 million R&D tax refund for the work taken over 2021 from the federal government. The biotech company is set to use the funds to invest further into the research and development of therapeutic products using molecularly targeted radiation. Shares closed 0.5 per cent lower to $4.13.

CEO of Kingston Resources’ (ASX:KSN) Andrew Corbett is set to speak at the Resources Rising Stars conference in the Gold Coast today. Investors are optimistic on the outlook for Misima as they await further details. Shares closed 3.9 per cent higher to 13.5 cents.

Futures

The Dow Jones futures are pointing to a fall of 160 points.
The S&P 500 futures are pointing to a fall of 25 points.
The Nasdaq futures are pointing to a fall of 105 points.
The SPI futures are pointing to a fall of 119 points when the market next opens.

Asian markets

Japan’s Nikkei has gained 0.1 per cent.
Hong Kong’s Hang Seng has lost 0.8 per cent.
China’s Shanghai Composite has lost 0.1 per cent.

Commodities and the dollar

Gold is trading at US$1,839.65 an ounce.
Iron ore is 2.2 per cent higher at US$146.75 a ton.
Iron ore futures are pointing to a fall of 1.0 per cent.
Light crude is trading $0.56 higher at US$119.06 a barrel.
One Australian dollar is buying 71.73 US cents.

Sources: Bloomberg, Factset