Fat Tail Daily

Investment Ideas From the Edge of the Bell Curve

ASX News Live | ASX Surges As RBA Passes 0.25% Rate Hike, Lithium Stocks Soar

Which ASX stocks are falling despite broad rally on Tuesday?

The ASX 200 is up 3.50% following a dovish interest rate decision from the Reserve Bank of Australia.

The central bank raised the cash rate by 25 basis points instead of the widely expected 50 basis points.

Stocks rallied on the news.

But not every stock.

On the ASX 200, only the Lottery Corporation (ASX:TLC) is currently down, and down 0.4% at that.

It’s a little different over at the All Ords.

The worst performers on the All Ords right now:

  • Tigers Realm Coal (ASX:TIG), down 10.5%
  • Adore Beauty (ASX:ABY), down 8.5%
  • Macmahon (ASX:MAH), down 6.7%
  • Eroad (ASX:ERD), down 6.2%
  • Electro Optic Systems (ASX:EOS), down 6%

 

AMP’s Shane Oliver: RBA’s 0.25% hike sensible

AMP’s chief economist Shane Oliver was less critical of the Reserve Bank’s decision to ease the pace of interest rate hikes.

Oliver argued the 25 basis point cash rate increase was sensible.

The smaller than expected raise gives the central bank time to assess its work given the lags involved with interest rates percolating through the economy.

ASX surges on RBA’s 25 basis point hike, lithium stocks soar

The ASX 200 is up 3.4% nearing 3pm after the Reserve Bank of Australia blinked and raised the cash rate by 25 basis points, coming in lower than market estimates of 50 basis points.

Lithium stocks are among the best performers on the ASX right now:

  • Lake Resources (ASX:LKE), up 14%
  • Pilbara Minerals (ASX:PLS), up 11.4%
  • Silver Lake Resources (ASX:SLR), up 11.4%
  • Core Lithium (ASX:CXO), up 11.3%
  • Allkem (ASX:AKE), up 9.5%
  • Life360 (ASX:360), up 8.4%
  • Novonix (ASX:NVX), up 8.4%

BREAKING | RBA raises interest rates by 0.25% to 2.60%

The Reserve Bank of Australia has blinked.

The central bank raised the cash rate by 0.25% to 2.60%, surprising plenty who thought the bank would stick with a 50 basis point hike.

The 0.25% hike marks the sixth straight interest rate increase by the RBA.

The cash rate now sits at a nine-year high at 2.60%.

RBA governor commented:

“The cash rate has been increased substantially in a short period of time. Reflecting this, the Board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia.

“One source of uncertainty is the outlook for the global economy, which has deteriorated recently. Another is how household spending in Australia responds to the tighter financial conditions. 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 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 still remains higher than it was before the pandemic.”

Can bitcoin make central banks obsolete?

The British pound is teetering.

The US Fed is hiking at a record pace.

Credit Suisse is wobbling.

As Ryan Dinse pointed out yesterday, cockroaches are appearing as the global economy festers.

But what struck me most in Ryan’s piece is his lament at a financial system stressed by central bank incompetence.

As Ryan wrote:

‘If the great fiat experiment is indeed doomed, no matter how central banks try and fix it, where do you turn?

‘Step one is getting out of centralised finance…and instead, getting into the world of decentralisation. It’s becoming more and more clear that this is the only way forward for our monetary system…

‘The story is so much larger than the price of bitcoin, although that is sure to increase over time as more and more people realise this.

‘It’s about the idea that anyone (anywhere) can participate in a financial ecosystem without fear or favour.

‘Something we all desperately need right now.’

Can cryptocurrencies provide a cure? And if they can, what does that mean for central banks?

Is Bitcoin [BTC] their existential threat?

A world without central banks

There was a time before central banks. We didn’t always live under their auspice.

For instance, the US Federal Reserve was established by Congress in 1913. The Reserve Bank of Australia, as we know it, only commenced operations in 1960.

And developments in cryptocurrency may well usher us back to a central bank-free era once more.

The idea of obsoleting central banks isn’t new or particular to cryptocurrencies.

Prominent economists of a bygone era like John Nash and Milton Friedman both argued for the role of an ‘algorithmic currency’ that would supplant the role of central banks.

In a 1994 interview, Nobel laureate Friedman even went so far as to call for the abolition of the Fed.

Its record wasn’t much good, he thought.

Friedman wasn’t alone.

In Financial Stability without Central Banks, economist and historian George Selgin didn’t pull his punches when assessing the history of central banks.

Here’s an excerpt (emphasis added):

‘A banking system that is backed by a central bank has a tendency towards instability. This is because the creation of money by the central bank can inflate money and credit creation in the banking system as a whole. The mechanism of banks restraining the behaviour of each other is blunted. Financial instability and price instability are likely results.

‘Since the creation of the Federal Reserve, financial stability has worsened. The pre-Federal Reserve model was itself problematic. However, the history of other countries’ banking systems suggests that whatever the problem was, the solution was not a central bank. Financial stability is more likely in a system without central banks and that is not distorted by misguided regulation.’

https://www.moneymorning.com.au/20221004/can-bitcoin-make-central-banks-obsolete.html

Are central banks risking a global recession?

Central banks worldwide are raising interest rates.

This uncoordinated effort risks a global recession, according to the Peterson Institute for International Economics.

“Central banks nearly everywhere feel accused of being on the back foot. The present danger, however, is not so much that current and planned moves will fail eventually to quell inflation. It is that they collectively go too far and drive the world economy into an unnecessarily harsh contraction. Just as central banks (especially those of the richer countries) misread the factors driving inflation when it was rising in 2021, they may also be underestimating the speed with which inflation could fall as their economies slow. And, as often is the case, by simultaneously all going in the same direction, they risk reinforcing each other’s policy impacts without taking that feedback loop into account. The highly globalized nature of today’s world economy amplifies the risk.”

Great Britain could enter ‘gas supply emergency’

A letter from the UK energy regulator Ofgem warned the UK faces a “significant risk that gas shortages could occur during the winter 2022/2023.”

If the worst materialises, the region could enter a gas supply emergency.

This, Ofgem pointed out, could pose solvency risks to gas-fired generator operators.

If gas-fired power stations have their gas supply curtailed in the event of a Gas Supply Emergency, they will likely be exposed to Imbalance Charges (plus associated Credit requirements) if they have sold their power ahead of time and are expected to deliver this power. These Imbalance Charges are likely to be high as the Electricity System Operator (ESO)) would have to instruct other plant or demand side response in order to replace the lost power expected from the curtailed gas-fired generators. These high imbalance prices and large imbalance volumes could result in potential insolvency of gas-fired generators if a Gas Supply Emergency occurs.

ASX lithium stocks rise

ASX lithium stocks are surging on Tuesday, led by Sayona Mining (ASX:SYA), who announced the launch of a pre-feasibility study for its NAL project’s carbonate production.

Kiryll Prakapenka

Key Posts

Fat Tail Logo

Fat Tail Daily is brought to you by the team at Fat Tail Investment Research

Copyright © 2024 Fat Tail Daily | ACN: 117 765 009 / ABN: 33 117 765 009 / ASFL: 323 988