The ASX is expected to edge down this morning. Today’s the day the Reserve Bank meets to discuss interest rates. It’s fair to say the second hike in 10 years is on the cards, but what’s not as clear is how steep that hike will be.
The big four banks are split into two camps. Westpac and the ANZ expect an increase of at least 40 basis points (bps), while the Commonwealth Bank and the NAB are tipping a gentler incline of 25 bps.
Scott Solomon, associate portfolio manager of T Rowe Price’s Dynamic Global Bond Strategy, is on team Commonwealth/NAB: “We expect the RBA to raise the overnight cash rate by 25 bps to 60 bps in its monetary policy decision on June 7.
“It’s clear the RBA will raise rates as they return to ‘normal operating procedure’, but there is a range of estimates being tossed around the market right now, ranging from 25 bps to 50 bps. 40 bps would take the cash rate target to 75 bps, which is a more traditional number.
“While unlikely, 50 bps would put the RBA on par with recent changes in the US, New Zealand and Canada.”
National Accounts data
The RBA will no doubt be looking at the Australian Bureau of Statistics (ABS) economic data from the March quarter, which indicates that the Australian economy grew 0.8% over that quarter and 3.3% year on year.
This better-than-expected growth speaks to a rise in business inventories as supply chain bottlenecks eased, along with surprisingly healthy consumer sentiment, with household spending up 08% – the first time it has risen above pre-pandemic levels.
But the new treasurer warned about the “forward looking” nature of the data, saying:
"If you think about what's happened in our economy since the end of March: inflation is higher, we've had an interest rate hike, petrol prices are up 12% since the end of April, wholesale electricity prices are up 237% since the end of March, gas is more than 300% higher than the average of the last couple of years.
"We do have labour shortages. We do still have COVID absenteeism. And the international environment has become more challenging as well.
"There's no point mincing words about the sorts of conditions that we have inherited."
Pulling the gas trigger
One of those figures is not like the others – the gas price. This is an unexploded ordnance from the last decade that the new government will have to handle with extreme caution.
Gas used to be the cheap energy option in Australia but for some years now the domestic gas price has been linked to the export price. Untethering the two is like unscrambling eggs.
Such is the crisis that an urgent meeting of Commonwealth, state and territory energy ministers has been set for Wednesday, as a cold snap places pressure on demand and prices begin their steep ascent.
Resources Minister Madeleine King told the ABC that all options were on the table to address the gas price conundrum, including a gas reservation policy ensuring Australian gas producers reserved a portion of their supplies for the domestic market.
WA already has such a policy, with 15% of gas produced in the state reserved for local consumption.
Commodities spike
Elsewhere, the Australian Financial Review reports that spot commodity prices are at record highs as the war in Ukraine continues to affect energy and food supplies and demand in China returns to post-lockdown levels.
The Bloomberg Commodity Spot Index rose 1.9% on Monday to its highest-ever level. The index measures prices for 23 raw materials, and has climbed 36% this year – on track for its biggest annual jump in more than a decade.
Extraordinary factors have fanned the heat on oil and gas prices in particular, and the Bloomberg spot energy subindex has jumped more than 92% year-to-date, the most since at least 1992.
The markets
Wall Street was a rollercoaster on Monday, but all the indices were slightly up at close of play as investors looked for bargains.
Amazon.com shares were up 2% following a 20-for-1 stock split, while Twitter shares slid 1.5% as Elon Musk continued to haggle over details and threatened to pull the pin on the much awaited takeover.
The Dow rallied on the back of eased restrictions in Beijing, closing up 16 points or 0.1%. The S&P 500 rose by 0.3%, while the Nasdaq added 49 points or 0.4%.
Base metal prices were up, with copper soaring to five-week highs with the prospect of increased Chinese demand. Nickel led gains, up by 5.6%, while zinc fell by 0.2%.