The ASX 200 closed down -0.58% to 7,581.6 in its second day of falls as the US dollar and bond yields continue to pressure equity markets.
Other notable moves include the sharply dropping Chinese indices, which have since begun to bounce as Chinese officials began to move.
In a classic Chinese way, some of that has been achieved by forcing the hand of the market, such as further restricting short-selling.
Back to the ASX, only the energy (+0.44%) sector was up today, with all other sectors down.
The worst performers today were the interest rate-sensitive tech sector, falling by 1.80%.
RBA Governor Michele Bullock just concluded her post-RBA decision conference to discuss the RBA’s decision to keep rates unchanged at 4.3%.
The meeting is part of the RBA’s new schedule, which changed after an internal review that began during the final days of the prior governor, Dr Phillip Lowe.
The full details of the changes can be seen here.
The major change is the number of board meetings was cut from 11 to 8, with each new meeting now coinciding with the release of significant economic data.
The post-decision statement has also been simplified to make it more accessible (posted in full below) and is a statement from the board rather than the Governor themselves.
The 3:30pm meeting was a chance for Mrs Bullock to explain the decision in her own words and was relatively guarded for Mrs Bullocks usual candor.
Here is the video of the full conference.
Here were some notable questions and answers:
When asked if November’s rate rise was a mistake:
She said plainly that the board ‘didn’t make a mistake’ and reiterated that the board is far more fearful of inflation climbing up again rather than rising unemployment or slowing economic growth, adding:
“Returning inflation to target within a reasonable timeframe remains the Board’s highest priority,” the board noted in its post-meeting statement.”
“This is consistent with the RBA’s mandate for price stability and full employment.”
When asked if both rate cuts and rises can be ruled out:
She responded that the central bank won’t rule anything out, saying:
“I would say we have maintained the option that there might need to be more rate rises, but the option is there.”
When asked if the Stage 3 tax cuts were going to affect the RBA’s forecasting:
She said simply that the overall change was not significant for the forecasts, saying:
‘I think the very short answer to that is — I don’t think it’s a material issue,”
“If you look at Treasury’s analysis, which was published on the website, they actually did a little bit of analysis to look at what might happen depending on different marginal propensities to consume.”
“The bottom line really is that the fiscal envelope is the same. It’s the same amount of money being handed out to households, but distributed slightly differently.”
“We don’t think it has any implications for our forecasts.”
When asked about the realism of returning to long-term productivity in Australia:
She tried to downplay recent data and asked people to take a step back, saying:
“There’s been a lot made about productivity and about the fact that if you look at recent productivity, it hasn’t really grown in 5-6 years.”
“But you’ve got to remember that during the pandemic, productivity estimates were all over the shop.. they were everywhere.”
“Concentrating on quarterly productivity changes, I don’t think, is very helpful… I think we need to take a step back”
“We have assumptions in our forecasts that productivity will return to some sort of long-run trend, which will be positive.”
“I’m confident that will occur.”
Editor Brian Chu thinks we’ve got the setup for life-changing gains in one part of the ASX.
Here is what he thinks:
I reckon it’s easier to convince someone to buy a lottery ticket in every draw for an entire year than for them to buy small-cap stocks.
There are a few reasons for that.
I mentioned before that the lottery requires small regular commitment. It doesn’t pinch one’s wallet or bank account. Another is that there’s a quick and cheap thrill element with gambling. You may experience an adrenaline rush in a couple of minutes. Plus, you can quickly find out the outcome of your wager.
It’s different to speculating in small-cap stocks.
These stocks are volatile. Holding and trading them become a test of your emotional fortitude.
Most people can’t handle the suspense, especially when their shares plummet and paper losses mount.
But hear me out on this.
The last two to three years have been rough for many of these companies. Even as market indices made record highs, most investors shunned small-cap companies for the more established peers.
It’s been a distinctly two-speed stock market during this time.
However, we’re reaching a stage where there’s compelling value and future earning potential in this space. There are several signs that point to them hitting their bottom.
Read on below:
At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35% and the interest rate paid on Exchange Settlement balances unchanged at 4.25%.
Inflation continues to moderate but remains high
Inflation continued to ease in the December quarter. Despite this progress, inflation remains high at 4.1 per cent. Goods price inflation was lower than the RBA’s November forecasts. It has continued to ease, reflecting the resolution of earlier global supply chain disruptions and a moderation in domestic demand for goods. Services price inflation, however, declined at a more gradual pace in line with the RBA’s earlier forecasts and remains high. This is consistent with continuing excess demand in the economy and strong domestic cost pressures, both for labour and non-labour inputs.
Higher interest rates are working to establish a more sustainable balance between aggregate demand and supply in the economy. Accordingly, conditions in the labour market continue to ease gradually, although they remain tighter than is consistent with sustained full employment and inflation at target. Wages growth has picked up but is not expected to increase much further and remains consistent with the inflation target, on the assumption that productivity growth increases to around its long-run average. Inflation is still weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment.
The outlook is still highly uncertain.
While there are encouraging signs, the economic outlook is uncertain and the Board remains highly attentive to inflation risks. The central forecasts are for inflation to return to the target range of 2–3 per cent in 2025, and to the midpoint in 2026. Services price inflation is expected to decline gradually as demand moderates and growth in labour and non-labour costs eases. Employment is expected to continue to grow moderately and the unemployment rate and the broader under utilisation rate are expected to increase a bit further.
While there have been favourable signs on goods price inflation abroad, services price inflation has remained persistent and the same could occur in Australia. There also remains a high level of uncertainty around the outlook for the Chinese economy and the implications of the conflicts in Ukraine and the Middle East. Domestically, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand, and while the labour market remains tight. The outlook for household consumption also remains uncertain.
Returning inflation to target is the priority.
Returning inflation to target within a reasonable timeframe remains the Board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment. The Board needs to be confident that inflation is moving sustainably towards the target range. To date, medium-term inflation expectations have been consistent with the inflation target, and it is important that this remains the case.
While recent data indicate that inflation is easing, it remains high. The Board expects that it will be some time, yet before inflation is sustainably in the target range. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out. The Board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.
Reserve Bank of Australia (RBA) maintained the cash rate at 4.35% today after its debut two-day meeting.
Here are the highlights from the meeting:
RBA Stays the Course: The RBA signalled that it intends to keep its tightening bias, with the board saying ‘further increase in interest rates cannot be ruled out.‘
Growth Downgrade: Economic growth projections were revised downward, with the RBA expecting a slowdown to 1.8% by year-end (previously 2%), followed by a moderate rebound to 2.3% in 2025.
Inflation Easing, But Still Elevated: Inflation forecasts were adjusted slightly lower, with the RBA now predicting 3.2% by December 2024 and 2.8% in 2025. However, inflation remains above the target range of 2-3%.
Jobless Rate Revised Up: The RBA anticipates a slight increase in unemployment, projecting a jobless rate of 4.3% by year-end (up from 4.2%).
Michele Bullock is due to speak at 3:30pm AEST for more.
ASX 200 is down -0.64% at 7,577.4 around midday as the market falls in line with US equities drop overnight.
Interest rates sensitive sectors such as tech and mining are facing the worst of it today as the market awaits the RBA decision at 2:30pm AEST.
All sectors except Energy (+0.36%) are down today, with the largest losses seen in Tech which is down -2.0%.
In individual performances Nick Scali is up +17% after a strong 1H24 earnings today, while West African Resources are down -14.89% after its FY24 production guidance came in lower than FY23 production due to deeper mining requirements.
Other notable moves include Myer up 13.5% and Bougainville Copper down -14.3%.
China’s local stock market has tanked in recent days as the fallout from the Evergrande collapse continues to metastasize.
The messy fallout of the US$498 billion dollar collapse of property giant Evergrande has accelerated the downturn as Hong Kong courts (which traditionally hold little sway on the mainland) ordered the liquidation of the property developer after nearly two years of attempts to restructure.
The majority of the bondholders were HK businesses who forced the issue after multiple failed bond repayments.
China’s real estate market accounts for around a quarter of the Chinese GDP, but its debts flow into almost every household with heavy investments in the sector.
According to the Kobeiseissi Letter, nearly 30% of Chinese stocks are halted as the free fall in the Chinese small-cap indices continues today, with big losses seen across the board.
Click through the numbers in the chart below to see the performance of the major Chinese indices in the past three months.
Shares of Australian gold miner West African Resources [ASX:WAF] are down by over 10% in trading this morning as the company released disappointing production guidance.
The company is currently the worst performer on the ASX 300 this morning, as WAF sees its biggest losses since Jan 2022 and its lowest levels since November 2021.
The gold miner expects gold production of 190,000-210,000 ounces in 2024, below the 226,823 ounces reported in 2023.
The company said the reduction was due to a higher proportion of mining taking place underground rather than open-pit mining.
They also projected an all-in sustaining cost of less than US$1,300 per ounce.
West African Executive Chairman and CEO Richard Hyde commented:
“Sanbrado is expected to continue performing in line with our long term mining plan in 2024 with unhedged production guidance of 190,000 to 210,000 ounces of gold at an AISC of less than US$1,300 per ounce.
“Site construction activity at Kiaka will see a major ramp up in 2024 with an expected growth capital investment of US$230 to US$270 million primarily allocated to Kiaka. The project remains on schedule and on budget with first gold expected in the second half of 2025.
“We look forward to releasing our updated Resources, Reserves and 10-year production plan in the coming weeks.”
Furniture maker Nick Scali [ASX:NCK] has seen its shares jump by 15% in trading this morning after the company topped its earnings guidance
While revenue was down, with H124’s revenue of $226.6 million compared to H123’s $283.9 million, the company surprised investors with its strength.
Much of the H123 numbers were boosted from a backed-up order bank from the pandemic, with the order book of June 2022 especially strong.
Written sales orders were up 1.1% on H123 to $212.7 million, while the company’s gross profit margin was up 2.1% to 65.6%.
Nick Scali’s profit after tax ended up at $43 million for the half, above the projected 40-42 million guidance given in October 2023.
Good morning. Charlie here
The ASX 200 opened down -0.48% to 7,589.6 as the market followed Wall Street lower.
Equities have been under pressure in recent days as bond yields continue to climb while traders absorb further talk of pushback from central banks’ eventual cuts.
The Reserve Bank completes its first two-day policy meeting today with a decision due at 2:30pm AEST that will include updated forecasts and a media conference with the RBA’s thoughts.
The Central Bank is widely expected to keep rates unchanged at 4.35%, with the RBA Rate Tracker putting the market’s bet at a 5% chance of a change.
It is a similar story in the US, where the US added 353,000 new jobs in January, which is almost double the expected 177,000 jobs.
The strength of the current US economy seems to have given the Fed space to proceed cautiously, likely pushing back rate cuts until things start to strain later in the year.
Jerome Powell’s recent 60 Minutes interview signalled the Fed’s intention to make three cuts this year.
These pullbacks in cut expectations have sent bond yields and the US dollar soaring, pressuring commodity prices and risker assets, neither great for the ASX.
Meanwhile, NZ celebrates the public holiday Waitangi Day today.
Wall Street: Dow -0.71%, Nasdaq -0.20%, S&P 500 -0.32%.
Overseas: FTSE flat, STOXX flat, Nikkei +0.54%, SSE -1.02%
The Aussie dollar fell -0.49% to US 64.83 cents, now down almost 2% in a week.
US 10-year bond yields spiked +16bps to 4.16%.
Australian 10-year bond yields jumped +17bps to 4.14%.
Gold fell -0.73% to US$2,024.76. Silver rose +1.51% to US$22.35.
Bitcoin fell -0.36% to US$42,400, while Ethereum rose +0.11% to US$2,290.
Oil Brent rose +0.85% to US$77.99, while WTI Crude rose +0.73% to US$72.81.
Iron ore fell -0.5% to US$125.70 a tonne.
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