The All Ords and the S&P/ASX 200 were up by 0.26% and 0.25% to 7,523.50 and 7,732.40 respectively this afternoon – coincidentally about the same percentage lift as yesterday’s rate increase – though the Aussie dollar was down 0.03% to 69.62 US cents.
Analysts were picking over the bones of the ninth consecutive rate rise by the RBA yesterday, which has already been passed on in full to borrowers by two of the big four banks. Most agree that we’ll be on this trajectory for some months.
Green light for hikes
“Given that the employment situation remains tight, inflation is higher than they expected and ‘strong domestic demand is adding to inflationary pressures’, we have several green lights for a hike in March and perhaps in May,” said City Index senior market analyst Matt Simpson.
“Perhaps we’re closer to the elusive pause Dr Lowe teased us with last year but I see no immediate threat of one in that statement.
“And while the RBA expects CPI to decline as global factors and growth in domestic demands slows, what is going to happen if they do not slow quickly enough?
“Yep, more hikes. For now, a March hike seems like a done deal and I live in hope they hint at a pause, but I will not hang my hat on that given the data overall and strong levels of inflation.
“The focus now shifts to Friday’s quarterly SOMP (Statement on Monetary Policy) which includes their revised forecasts.
“The past three reports have seen growth forecasts decelerate and inflation upwardly revised. Given the new monthly annual CPI read rose to 8.1% y/y, and trimmed mean and median inflation beat expectations, there’s a decent chance we’ll see CPI revised higher once more – which in itself could signal another rate hike or two.
"Wage growth has also been revised higher over the past three reports and could be taken as another hawkish cue should it be revised higher for a fourth.”
The State of the Union is ... rowdy
Over in the US, President Joe Biden faced a much tougher crowd as he delivered his second State of the Union address, his first since the Republicans took the House of Representatives.
This didn’t seem to dent his enthusiasm, as the now-octogenarian president touted his achievements on jobs and infrastructure which, while sweeping in scope, may take a while to connect with the hip pockets of voters – particularly with inflation still on a rolling boil.
“The US dollar was able to rebound to a certain extent after months of decreases as the Federal Reserve raised interest rates another time last week, although at a slower pace,” BDSwiss CEO MENA Daniel Takieddine said.
“While inflation is slowing faster than previously anticipated, the latest data on the US job market introduced some doubts about the next steps of the US central bank.
“While the institution has sought to fight inflation by compressing demand, stronger purchasing power could fuel inflationary pressures and lead the central bank to keep interest rates higher for longer. This in turn could support the dollar over the medium term.
“The improving outlook for the US economy has also boosted sentiment among investors. The prospect of a softer slowdown could make the US an attractive destination for investments, in particular as other regions like Europe could be hit harder.
“Additionally, the risks of increasing tensions between the US and China following the discovery of the suspected spy balloon could draw investors toward the safety of the US dollar.
"This trend could exacerbate if tensions flare up. The US and China have already been at odds during the last few months while the US tried to limit China’s access to cutting-edge chip technology.
“However, this positive impetus could be dampened over the medium term in particular against the euro if the European Central Bank maintains its elevated pace of interest hikes in the future.”
Correction may have further to run
“Investors seem a little lost this week, disheartened by the jobs report in particular but also poor tech earnings and a still hawkish Federal Reserve,” said OANDA senior market analyst UK and EMEA Craig Erlam.
“The central bank may have softened its tone a little but once you take the economic data into consideration, the case for a couple more 25-basis point hikes is clearly there.
“That's come as quite a setback following what has been a much more optimistic start to the year, in which interest rate expectations have been broadly pared back. But as was always likely to be the case, and will likely remain so this quarter at least, the data is going to be inconsistent and sentiment is going to reflect that.
“The gold sell-off appears to have stalled around $1,860, where it has seen some support over the last couple of sessions. This was a notable level on the way up as well last month but I suspect it may not represent the end of the correction, given how considerable the rally was from the start of November until last week.
“We could see gold pare some losses, at which point $1,900 would obviously be interesting, being such a significant area of support in recent weeks. A move lower could draw interest to $1,820-$1,830 which stands out as a big initial test.
“Bitcoin continues to look in a fairly strong position, having weathered the recent storm quite well. It remains not far from its highs and within the range it's traded in for most of the last few weeks.
“Sentiment remains a dominant factor but what the community will likely be hoping for more than anything right now is for headlines to not turn against them and for cryptos to show some resilience. So far, both of those boxes are being ticked.”
The Five at Five
Latin Resources more than quadruples Salinas’ lithium tenure, opens door for major resource growth
Latin Resources Ltd (ASX:LRS) has expanded the project tenure of the Salinas lithium asset in Brazil by a whopping 367%. The critical minerals explorer has lodged 17 new applications — covering nearly 30,000 hectares — over land with strong lithium pegmatite potential in the highly prospective Bananal Valley district.
Dynamic Metals off to great start in 2023 by completing drill program at Dordie Far West nickel prospect
Dynamic Metals Ltd (ASX:DYM) has completed its first drill program since listing on the ASX last month. Five reverse circulation (RC) holes were drilled for a total of 736 metres at the Dordie Far West nickel prospect within the Widgiemooltha Lithium-Nickel-Gold Project in Western Australia.
Maximus Resources welcomes Beacon Minerals’ investment and addition of Graham McGarry to board
Maximus Resources Ltd (ASX:MXR) appointed experienced Beacon Minerals Ltd executive chairman and managing director Graham McGarry as a non-executive director, following Beacon taking a 19.8% shareholding in Maximus through the purchase of 63,254,972 shares. The investment is expected to enhance efforts to advance the Wattle Dam Gold Project, just 70 kilometres from Beacon’s 100%-owned Jaurdi 800,000 tonnes per annum gold processing plant.
Xantippe Resources fields thick LCT pegmatite intervals at Blanche deposit
Xantippe Resources Ltd (ASX:XTC, OTC:XTCPF) has intersected thick intervals of lithium-caesium-tantalum (LCT) pegmatites along with mineralogy indicative of fractionation prospective for lithium mineralisation at Blanche prospect within the Southern Cross Project in the Western Australian Goldfields.
OzAurum Resources enhances Mulgabbie North potential with more shallow, high-grade gold
OzAurum Resources Ltd (ASX:OZM) has enhanced the golden potential of Mulgabbie North Project in WA’s Eastern Goldfields through shallow, high-grade drill results of up to 13 metres at 4.60 g/t from 21 metres including 1-metre hits at 22.70 g/t and 22.10 g/t from 21 and 22 metres respectively. The encouraging results have been returned from recently completed reverse circulation (RC) and diamond drilling programs at the James Prospect.
On your six
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The one to watch
Emyria ramps up MDMA programs following ‘incredible’ TGA decision
Emyria Ltd (ASX:EMD) MD Michael Winlo speaks with Proactive following the Therapeutic Goods Administration (TGA)’s decision to down-schedule MDMA and psilocybin to Schedule 8 'Controlled Medicines' from July 2023. Winlo says the clinical-stage biotech, backed by Australian billionaire Andrew Forrest, is well-positioned to accelerate patient access to MDMA-assisted therapies.