Pre-Open Data
Key Data for the Week
- Tuesday – AUS – RBA Cash Rate Decision – The cash rate was left unchanged at 0.1%.
- Tuesday – AUS – Retail Sales fell 4.4% in December.
- Tuesday – US – Markit Manufacturing PMI fell to 55.5, broadly in line with expectations.
- Wednesday – EUR – Consumer Price Index
Australian Market
The Australian sharemarket rose 0.5% on Tuesday, its highest level in a week, after the Reserve Bank of Australia eased concerns that an interest rate increase was imminent. In its meeting, the central bank reaffirmed that it will not increase the cash rate until actual inflation is sustainably within its 2-3% target range. Despite this, the bank will cease its bond buying program this month, recognising the recent uplift in inflation.
The rate-sensitive Information Technology sector (2.4%) benefited from the RBA’s commentary, as investors bought to take advantage of the recent price weakness. The sector’s most notable gainer was Block Inc (6.1%), the company behind Square, which recently completed its acquisition of Afterpay.
Meanwhile, the Materials sector was the session’s primary laggard, down 1.2%, as the price of iron ore dipped. Losses were led by index heavyweights BHP (-3.1%), Rio Tinto (-2.4%) and Fortescue Metals Group (-0.7%). Despite this, key stocks which buoyed the sector included Mineral Resources (3.6%), Northern Star Resources (2.2%) and Boral (5.8%), which surged after it announced it would return $3 billion to shareholders following a string of asset sales.
The Financials sector (1.2%) performed modestly, as all major banks closed higher. Notable gainers included NAB (1.9%) and Macquarie Group (2.7%).
The Australian futures market points to a 0.79% increase today.
Overseas Markets
European sharemarkets advanced on Tuesday, supported by mining and bank stocks. Notable gainers included British banks Barclays (2.0%) and Lloyds Banking Group (2.6%), alongside London listed Rio Tinto and Glencore, which both lifted between 3.2-3.4%. The banks have benefitted from the recent increase in the cash rate by the Bank of England, with expectations the central bank will raise rates again in its meeting later this week. These expectations are being reflected in the two year British bonds, which hit their highest level since 2011. By the close of trade, the STOXX Europe 600, German DAX and UK FTSE 100 all gained ~1.0%.
US sharemarkets were higher on Tuesday, as 8 out of the 11 sectors closed ahead. The Energy sector was the strongest performer, up 3.5%, which represented a staggering 19.0% increase this calendar year to date, as oil and gas prices remain elevated. Meanwhile the Information Technology sector (0.2%) closed relatively flat, despite gains made by Netflix (7.0%), Alphabet (1.6%) and Meta Platforms (1.8%). Another notable mover was AT&T, the world’s largest telecommunications company, which slipped 4.2% after it announced it cut its dividend by nearly half. By the close of trade, the S&P 500, NASDAQ and Dow Jones all advanced between 0.7-0.8%.
CNIS Perspective
Foreign Exchange traders were glued to their screens yesterday in anticipation of announcements from the RBA's board meeting.
With the US already signalling higher interest rates are likely as early as March, the US Dollar has appreciated significantly over the Australian Dollar over recent weeks. The Australian Dollar fell below 70 US cents momentarily last Friday.
While the RBA left rates on hold yesterday, as expected, their commentary confirms it's likely the Official Cash Rate will more than likely rise in 2022, as opposed to their previous indications it would be 2023.
The reason being that financial conditions in the Australian economy are quite positive. The unemployment rate could fall to a level where Australia hits the full employment mark and that more than likely pushes the inflation rate higher.
The AUD/USD has steadied around the 71 US cents level, but will no doubt move around as a result of future comments from the US Federal Reserve and the RBA.
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