The ASX looks set to recover from its hat-trick of three consecutive trading day losses, as the US starts to pick itself up following its own slump.
ASX futures were up 0.7% to 7,285 points this morning, while the dollar rose moderately during trade yesterday before settling back to 71.2 US cents.
But the big news was the inflation rate, which defied the forecast 4.6% we reported yesterday by coming in at 5.1%, the sharpest increase since 2001.
Pre-election rate rise on the cards
The data puts pressure on the RBA to move on rates at its next meeting, scheduled for May 3. Of course, this is bad news for the Prime Minister, who has been banking on not having to tackle the interest rate question during a tight election campaign.
Consensus among analysts seems to be that the RBA should rip the band-aid off while Australia’s inflation position remains less dire than in Europe and the US, not to mention New Zealand (6.9%) and Canada (6.7%).
In 2007, John Howard was famously peeved with the RBA for moving on rates ahead of an election.
It remains to be seen whether the bank will do what it has to do, or risk appearing to cave to political pressure if it fails to move.
RBA risks losing credibility
EY chief economist Cherelle Murphy said this morning that raising rates was the economically responsible thing to do, and if the RBA failed to move it “will lose credibility”.
Once interest rates do move up – because it’s no longer an ‘if’ situation – it will be the first time since 2010 that rates have gone in that direction.
In that time there has been a property boom, and a whole generation of new homeowners and businesses have benefited from record-low rates and cheap money.
Many borrowers are geared so tightly that even a small rate rise will cause significant pain. And it’s clear that, with a starting point of 0.1%, there will likely be several rises throughout 2022. Buckle up, buttercup.
Elsewhere in the world, things are shaky
US share markets lifted yesterday, with strong performers including Microsoft and Visa, and losses for Google parent company Alphabet and Boeing, which is struggling with certification issues on its 777X jets.
At close of play, the Dow Jones was up by 62 points or 0.2%, as was the S&P 500 index (also 0.2%). But the Nasdaq was still on a slight downward trajectory, losing 2 points.
European markets were up, but the Euro sank to its weakest level in five years, sitting at US$1.05, as Russia continued to blackmail several energy-dependent nations, requiring them to pay in roubles for their fuel. Gas supply has been cut off to Bulgaria and Poland, but many other European economies are feeling the heat.
Spot gold hit a two-month low, down 1% to US$1,885 per ounce, while Brent crude rose by 33 US cents or 0.3% to US$105.32 a barrel on the back of a stronger US dollar.