ASX News Live | ASX Edgy as RBA Raises Cash Rate 0.5% to 2.35%

The S&P/ASX 200 ended 0.38% down as investors digested the Reserve Bank’s latest 0.5% interest rate hike.

But while the broader market was testy, local lithium stocks rallied, boosted by several broker upgrades for big producers like Allkem and Pilbara.

But it was the juniors who benefited most:

• Core Lithium ended 9.9% higher
• Lake Resources ended 9.6% higher
• Pilbara Minerals ended 7% higher
• Liontown Resources ended 5.7% higher
• Allkem ended 4.3% higher

The #ASX200 ended 0.38% down as investors mulled the #RBA's 0.5% rate hike.

But #lithium stocks rallied, with the juniors rising highest:

– $CXO ended 9.9% higher
– $LKE ended 9.6% higher
– $PLS ended 7% higher
– $LTR ended 5.7% higher
– $AKE ended 4.3% higher

— Fat Tail Daily (@FatTailDaily) September 6, 2022

Increasing the cash rate by 50 basis points to 2.35%, RBA’s Philip Lowe commented (emphasis added):

“Inflation in Australia is the highest it has been since the early 1990s and is expected to increase further over the months ahead. Global factors explain much of the increase in inflation, but domestic factors are also playing a role. There are widespread upward pressures on prices from strong demand, a tight labour market and capacity constraints in some sectors of the economy.

“Inflation is expected to peak later this year and then decline back towards the 2–3 per cent range. The expected moderation in inflation reflects the ongoing resolution of global supply-side problems, recent declines in some commodity prices and the impact of rising interest rates. Medium-term inflation expectations remain well anchored, and it is important that this remains the case. The Bank’s central forecast is for CPI inflation to be around 7¾ per cent over 2022, a little above 4 per cent over 2023 and around 3 per cent over 2024.”

Household spending remains a key uncertainty for the central bank. The RBA again emphasised it is closely watching how inflation and rising rates affects household consumption:

“An important source of uncertainty continues to be the behaviour of household spending. Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments. Consumer confidence has also fallen and housing prices are declining in most markets after the earlier large increases. Working in the other direction, people are finding jobs, gaining more hours of work and receiving higher wages. Many households have also built up large financial buffers and the saving rate remains higher than it was before the pandemic. The Board will be paying close attention to how these various factors balance out as it assesses the appropriate setting of monetary policy.

“The further increase in interest rates today will help bring inflation back to target and create a more sustainable balance of demand and supply in the Australian economy. Price stability is a prerequisite for a strong economy and a sustained period of full employment. The Board expects to increase interest rates further over the months ahead, but it is not on a pre-set path. The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market. The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”

The Reserve Bank of Australia has increased the cash rate target by 50 basis points to 2.35% in a widely expected move.

“The further increase in interest rates today will help bring inflation back to target and create a more sustainable balance of demand and supply in the Australian economy. Price stability is a prerequisite for a strong economy and a sustained period of full employment. The Board expects to increase interest rates further over the months ahead, but it is not on a pre-set path. The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market. The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”

BREAKING

The #RBA has raised interest rates by 0.5% to 2.35%. #ausbiz #interestrates

— Fat Tail Daily (@FatTailDaily) September 6, 2022

ASX lithium stocks are rallying on Tuesday, boosted by broker upgrades.

The Australian Financial Review reported that Jefferies lifted its price targets on producers IGO, Allkem, and Pilbara.

And Macquarie retained its outperform rating on Allkem, the merged entity between Galaxy Resources and Orocobre.

But it was the junior lithium stocks surging the most late on Tuesday, with Core Lithium (ASX:CXO) and Lake Resources (ASX:LKE) up over 7%.

What are the cheapest stocks on the ASX right now?

One way to find out is to filter stocks by the Price-to-Earnings ratio (P/E).

The ASX 200’s historical P/E ratio has averaged around 15–16.

So a stock with a P/E of less than 10 is relatively ‘cheap’ on that basis. A P/E multiple of less than five is dirt cheap.

Filtering for mid-to-large stocks, here are the stocks with a P/E of five or less:

Unsurprisingly, the list is dominated by resource stocks and REITs.

Historically, resource stocks trade at low P/E multiples, being cyclical companies in mature industries paying out big dividends.

What is interesting are the three coal stocks.

Coronado Global, Whitehaven Coal, and New Hope are the best-performing stocks on that list, thanks to surging coal prices.

Yet despite their recent stock price performance, the stocks still look dirt cheap.

Take Whitehaven. The coal stock is up 200% this year. And it’s up almost 900% from this time two years ago.

Nonetheless, WHC shares still trade at a P/E multiple of around four.

And if you look ahead, Whitehaven looks even cheaper.

Based on consensus earnings estimates, Whitehaven’s forward FY23 P/E is 2.9 on a projected Return on Equity (ROE) of 56%.

On those estimates, Whitehaven is priced like a scuttlebutt stock on the expected ROE of a monopolistic software giant.

So does Whitehaven offer insane value? Or should investors be wary?

https://www.moneymorning.com.au/20220906/the-cheapest-stocks-on-the-asx.html