The ASX slipped just 0.05% or 3.60 points to 7,318.40 today, sluggish with the Anzac public holiday but buoyed by positive CPI data which has confirmed inflation appears to have peaked in the December quarter last year.
The ASX had a rocky day overall, dipping to 7,290 points in early trading before the release of CPI data rallied the index back to 7,324 points.
Another dip in the afternoon marked a smaller trough, with trading recovering in the last hour before the market closed, although not enough to cross over into the green.
The sectors were, unsurprisingly, fairly flat, although there were outliers on either side.
Materials (-0.62%) and Utilities (-0.81%) were the furthest in the red today, while Energy (+0.91), Industrials (+0.88%), Communication Services (+0.33%) and Real Estate (+0.34%) were able to notch gains.
Commodities were down almost across the board today, with only platinum (+0.41%) and gold (+0.38%) gaining and palladium (-3.32%) shedding the most.
The bottom-performing stocks today were both resource companies: Mineral Resources Ltd (ASX:MIN) slipped 8.93%, while Syrah Resources Ltd (ASX:SYR) dipped 5.32%.
It’s unclear why these particular companies are bearing the brunt of the current commodities downturn, although Mineral Resources’ exposure to iron ore likely has something to do with its falling share price.
Iron ore fell to US$106.5 per tonne today, driven lower by a cooling economy and a pessimistic outlook on China’s demand for the metal.
Citi analyst Wenyu Yao believes iron ore prices could fall as low as US$90 per tonne in 2023 before finding the floor.
In the news today
Inflation rate has well and truly peaked
With 10 consecutive rate hikes under the collective Australian belt, the RBA’s decision to pause rate hikes last month was met with a communal sigh of relief.
The latest CPI figures, released today, will likely give Australians another opportunity to take a breath – at least for now.
“Last month interest rates were paused by the RBA, giving the central bank more time to assess the effects of its rate hikes,” Stake brokerage platform ASX equities analyst Dylan Zhang said.
“Today’s 7% headline inflation figure is slightly higher than the expected 6.9% CPI but comes well below the 7.8% read from last quarter.
“This further supports the argument that inflation has peaked, causing the market to react positively.”
While the market is down today, it was a fair bit lower until 11:30am when CPI figures were released.
In the hour between 11:00 and 12:00, the ASX200 recovered 30 points, although some of that ground has been since lost once again.
“The largest price contributors were in education and health, as yearly premiums have increased,” Zhang explained.
“Rents and housing have continued to skyrocket but higher interest rates are actually fuelling this figure, as mortgage holders pass their increased repayments to renters.
“There are also other factors at play in regards to rent inflation, such as low supply paired with high migration, which won’t be solved through higher rates alone.”
Australians have been hit very hard by rent inflation. Data from PropTrack indicates an average 12.61% rental increase across the state capitals over the last 12 months, with Melbourne (+20%) and Sydney (+18.6%) hit the hardest.
RBA may still raise interest rates next month
“That said, the headline inflation figure is still high, and higher rates will be with us for some time,” Zhang cautioned.
“Last week’s unemployment data, which showed that job growth was well above expectations, means there is arguably still a case for the RBA to hike rates.”
CredWatch’s chief economist Anneke Thompson agrees that the likelihood of the RBA hiking rates next month is high.
“While price increases of goods continue to moderate, and indeed have come down in some categories on a weighted average capital city measure (clothing & footwear, -2.6% and furnishings, household equipment & services, -0.5%), services inflation continues to rise.
“Goods inflation has moderated from a peak of 9.6% in September 2022 quarter to 7.6% in the March quarter.
“Services inflation however reached a record 6.1%, following a 5.5% increase over the year to December 2022.
“Overall, the inflation rate has moderated to 7.0%, below both the September (7.3%) and December (7.8%) rates.”
In other words, while overall inflation is trending in the right direction, important subsets of CPI like rent and services inflation are still cause for concern.
“Yet, the RBA has been increasingly dovish, and the 50% drop in First Republic Bank (NYSE:FRC) stock overnight, suggests fears of a banking crisis could be reignited,” said Zhang, underlining that the markets are never predictable.
“Based on today’s market reaction, it seems that investors are banking on another pause in May.
“In the short to medium term, companies with established revenue streams, or strong pricing power, are likely to better weather the storm during an era of high rates.”
Thompson agrees.
“High supply costs continue to be a cause for concern for food and beverage businesses, and we expect these businesses to be the largest contributor to business insolvencies in the year ahead, with CreditorWatch’s Business Risk Index (BRI) data already showing this industry has the highest Probability of Default (POD), at 7.3%,” she said.
“Already, the food and beverage industry has the highest external administration rate (0.97%) of all industries, followed by the construction sector at 0.70%.”
It seems hospitality and construction will continue to bear the brunt of our economic woes, as they have since COVID-19 first disrupted the economy.
“That said, it’s important to remember that markets are forward-looking, and some investors will be looking at growth stocks in anticipation of a future rally,” Zhang concluded.
The five at five
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Ora Banda Mining higher on discovering lithium in first hole at Federal Flag near Davyhurst gold process plant
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Polymetals Resources higher on confirming unmined South Lode mineralisation at Endeavor with 71 metres at 11.02% zinc equivalent hit
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Queensland Pacific Metals signs binding nickel ore agreement with New Caledonian mining company
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Chimeric Therapeutics garners ethics approval for Phase 1B multi-site brain cancer study
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On your six
Antipa Minerals buckles down on Paterson Province exploration after WA Government funding boost
Antipa Minerals Ltd (ASX:AZY) will buckle down on its exploration activities in the Paterson Province following the receipt of a further three funding grants from the Western Australian Government’s Exploration Incentive Scheme.
One to watch
Ioneer boosts Rhyolite Ridge South Basin LCE resource by 168%
Ioneer Ltd (ASX:INR, OTC:GSCCF) head of investor relations Jason Mack tells Proactive the company has boosted the South Basin mineral resource estimate (MRE) at its Rhyolite Ridge Lithium-Boron Project in Nevada to 360 million tonnes.