RBA statement takes shine off the ASX rally, closing 0.2% higher

The Reserve Bank left its cash rate at a record low of 0.1 per cent with the shine taken off the equities rally after traders realised that the word “patient” was omitted. The hawkish tilt in its post meeting statement signalled that interest rate lift-off is imminent as the data-dependent central bank continues to set its eyes on inflation and wage growth figures.

The tone sent the Australian dollar surging through to 76 cents to the greenback for its first time since June last year, however market participants have been looking past the RBA’s rhetoric for some time, pricing in a series of rate hikes from July this year through till the end of 2023. A situation which bodes well for the Aussie dollar to rally and a headwind for equities for the short term.

While the RBA acknowledged that the annual inflation rate is at 3.5 per cent with the rate at 2.6 per cent excluding volatile items – the preferred figure the central bank watches, the number is currently sitting within the RBA’s target of two to three per cent.

However, Governor Philip Lowe said that “higher prices for petrol and other commodities will result in a further lift in inflation over coming quarters,” a statement which shows that the RBA is yet to be swayed that pricing pressures have cooled.

“The board will assess this and other incoming information as it sets policy to support full employment in Australia and inflation outcomes consistent with the target.”

Meanwhile, market participants were expecting Dr Lowe to provide some colour of the federal budget in his statement which was not mentioned this time round.

Before shares lost steam, the index was trading as high as 0.8 per cent within striking distance of its all-time high set back in August, charged up by tech shares as the best performer, adding 3.5 per cent after investors saw shares in Twitter surge 27 per cent after Elon Musk bought a 9.2 per cent stake in the company worth US$3 billion.

Lifting global sentiment, shares in US Block advanced 8.7 per cent, a move that saw local Block (ASX:SQ2) jump 6.2 per cent to $191.44, Xero (ASX:XRO) rise 4.5 per cent to $108, Wisetech Global (ASX:WTC) gained 2.6 per cent to $53.21 while Altium (ASX:ALU) closed 3.2 per cent higher at $35.40.

Banks closed mixed with Commonwealth Bank (ASX:CBA) added 0.6 per cent at $104.36, Westpac (ASX:WBC) rose 0.6 per cent to $24.05, National Australia Bank (ASX:NAB) rallied 0.3 per cent to $32.18 while Macquarie Group (ASX:MQG) closed 0.5 per cent higher at $207.06. ANZ Bank (ASX:ANZ) bucked the trend, falling 0.3 per cent to $27.04.

Energy shares came in as second best as “possible genocide” in Ukraine spurred the US and EU to prepare fresh sanctions against Russia, sending oil prices higher.

Woodside Petroleum (ASX:WPL) added 2.8 per cent to $33.93, Santos (ASX:STO) rose 2.3 per cent to $8.10, while AGL Energy (ASX:AGL) closed 2.6 per cent higher to $8.24.

Mining giants continued with its breather as BHP (ASX:BHP) fell 1 per cent to $51.95 and Rio Tinto (ASX:RIO) falling 0.4 per cent to $120.24 while Fortescue Metals (ASX:FMG) eked out a gain of 0.09 per cent to $21.72.

Meanwhile, Mineral Resources (ASX:MIN) rallied 5.9 per cent to $59.67 after the company said “unprecedented global customer demand for lithium products” had prompted US-listed Albermarle partner to accelerate resuming production from the Wodgina mine in Western Australia.

Investors now turn to Wall St for more colour around the moves on the Fed with Governor Lael Brainard set to speak ahead of the Federal Reserve minutes on Wednesday.

At the closing bell, the S&P/ASX 200 was 0.2 per cent or 14 points higher at 7,528.

Futures

The Dow Jones futures are pointing to a fall of 8 points.
The S&P 500 futures are pointing to a fall of 0.25 points.
The Nasdaq futures are pointing to a fall of 0.25 points.
The SPI futures are pointing to a rise of 16 points when the market next opens.

Local economic news

Consumer confidence rebounded 2.5 per cent as falling inflation expectations boosted sentiment. The index rose by 2.3 points to 93.4 this week after average petrol prices dropped by over 30 cents per litre last week as per ANZ and Roy Morgan. Consumer confidence has fallen for three straight weeks before this week’s increase.

The Australian Industry Group and HIA Australian performance of construction index improved by 3.1 points to 56.5 points, indicating further recovery in activity across the construction sector after a sharp fall over the summer holiday period. Results above 50 points indicate expansion in the sector, with higher results indicating a stronger expansion.

Broker moves

With the rising Covid-19 cases in China, Citi has downgraded A2 Milk’s (ASX:A2M) rating to a sell from a buy. The target price also got a trim to $4.80 from $7.02. The broker cites that due to the lockdown in a key port city, delivery delays are of concern. Adding to a fall in e-commerce prices, net profit forecasts are set to fall up to 5 per cent in the coming two financial years. Shares are trading 1.7 per cent lower to $5.08.

Meanwhile, Morgans has upgraded its rating for AGL Energy (ASX:AGL) to an add from a hold with its price target also getting a boost to $8.83 from $7.24. The broker believes that the market conditions in the wholesale space for electricity and gas is set to ripple into strong earnings for the company on a tight commodities market. Shares closed 2.6 per cent higher to $8.24.

After news from Iluka Resources’ (ASX:ILU) board giving its tick of approval to construct a $1.2 billion refinery in WA, Credit Suisse upgraded the stock to a neutral from underperform with a raised price target of $13 from $9. The loan from the federal government has supported this move. Aside from that, the broker believes that this project is a high-risk option as the experience in the separation of rare earth elements is far and few outside of China, however Credit Suisse notes that the company’s valuation could move higher as a beneficiary of the company’s bullish view. Shares closed 1.5 per cent higher to $12.41.

Best and worst performers

The best-performing sector was information technology, up 3.1 per cent. The worst-performing sector was materials, down 0.8 per cent.

The best-performing stock in the S&P/ASX 200 was Block (ASX:SQ2), closing 6.2 per cent higher at $191.44. It was followed by shares in Mineral Resources (ASX:MIN) and Novonix (ASX:NVX).

The worst-performing stock in the S&P/ASX 200 was AVZ Minerals (ASX:AVZ), closing 7.9 per cent lower at $1.23. It was followed by shares in Liontown Resources (ASX:LTR) and Lynas Rare Earths (ASX:LYC).

Asian markets

Japan’s Nikkei has gained 0.1 per cent.
Hong Kong’s Hang Seng is closed for National Day.
China’s Shanghai Composite is closed for the Qingming Festival.

Commodities and the dollar

Gold is trading at US$1931.12 an ounce.
Iron ore is 0.6 per cent higher at US$160.80 a ton.
Iron ore futures are pointing to a rise of 3.5 per cent.
Light crude is trading $1.81 higher at US$105.09 a barrel.
One Australian dollar is buying 76.09 US cents.