The ASX is higher again today.
The S&P/ASX200 gained 81.30 points or 1.16% to 7,087.30. Over the last five days, the index has gained 1.81%, but is down 4.80% for the last year to date.
Top-performing stocks in this index were Champion Iron Ltd (ASX:CIA) up 5.48% and Airport Ltd up 5.22%.
Energy, Materials and Financials were among the best performers, with Woodies and Santos up about 3%, big iron ore miners up 1.6%-3.7% and big banks up 0.9%-1.4%.
The good news for the markets was Reserve Bank of Australia Governor Phillip Lowe’s speech to the Press Club had no negative impact despite saying it was plausible interest rates would rise.
What the governor said
The RBA is factoring in three or four rate increases in 2022.
The bank’s latest economic forecasts, which will be detailed in Friday's Statement on Monetary Policy, are based on "market pricing" of "3 or 4 rate hikes", in the year ahead.
"If we kept rates unchanged, inflation would be higher than we forecast," notes RBA Governor Phillip Lowe.
When asked when rates would rise by The Australian Financial Review’s economics correspondent, Ronald Mizen, Lowe said, “The faster progress towards full employment and inflation consistent with the target does bring forward the timing of the likely increase in interest rates.
“We should welcome that. Whether it happens this year or not remains to be determined. It will depend on how the supply issues are resolved and the strength in the pick-up in labour costs. If things go well and the economy performs strongly, there’s clearly scenarios where we’ll be increasing rates later this year and some of these uncertainties get resolved, but time will tell.
“It’s certainly a plausible scenario rates go up later this year, but there are a lot of other scenarios as well. There are a lot of uncertainties both on the supply side and in the labour market.”
“The board is prepared to be patient as it monitors the evolution of the various factors affecting inflation in Australia.”
Most analysts are factoring in an August rate rise, although there was no clear guidance on a date.
When the ABC’s Peter Ryan asked whether the RBA is leaving it too late, and then having to play catch-up if inflation gets out of control, Lowe answered: “That’s a possibility but I think it’s unlikely really for the two reasons I mentioned before. The supply side problems will be resolved in a way that takes the pressure out of goods prices and there’s quite a lot of inertia in aggregate wages.
“If we’re wrong there and inflation does pick up and doesn’t come down then we will have to increase interest rates more quickly than I currently think is possible and I think, but this remains to be tested, and when interest rates go up this time I think the household sector will be quite responsive to it.”
On wages growth, the Governor said, "We don't have a specific rule or benchmark here," but labour productivity growth of 1% and 2.5% wages inflation is sufficient for a 3.5% outcome, Dr Lowe said, all things being equal.
“The relevant concept isn’t really the wage price index. We’re going to be paying close attention to the broader measures of labour costs.”
Commenting on Lowe’s statements, CBA head of economics Gareth Aird said, "We expect the inflation, wages and labour market data will be sufficiently strong over coming quarters for the RBA to hike the cash rate in August 2022."
Citi’s chief economist Josh Williamson has also predicted an August rise.
"Based on the forecasts presented, we would suggest that he is aiming for a late 2022/early 2023 start of policy tightening."
On the small cap front
- Shree Minerals Limited is 118.18% higher.
- Musgrave Minerals Ltd is 17.86% higher.
- Jindalee Resources Ltd is 14.57% higher.
- Predictive Discovery Ltd is 13.64% higher.
- Calima Energy Ltd is 9.52% higher.
- Chase Mining Corporation Ltd is 7.14% higher.
- Critical Resources Ltd is 4.55% higher.
- Element 25 Ltd is 3.86% higher.
- Apollo Minerals Ltd is 2.44% higher.