Markets wrap: RBA sharpens inflation focus, knocks wind out of ASX

A hawkish pivot from the Reserve Bank sent investors fleeing to the benches on Tuesday as the Australian sharemarket’s early progress melted away.

The Australian sharemarket was cruising before investors abandoned ship midafternoon when the Reserve Bank indicated it was getting ready to lift interest rates.

The ASX 2000 benchmark started Tuesday’s session strongly after solid overnight trade in the US – where tech stocks were particularly buoyant – but local equities retreated swiftly after the RBA’s April policy statement.

The Reserve Bank may have kept the cash rate steady at 0.1 per cent, but borrowers and economists were predicted mounting inflationary pressures to hike could happen as soon as next month.

While many economists said this may be unlikely due to the timing of the federal election, others such as GSFM’s Steven Miller said every meeting from here on was “live”.

The local bourse duly plunged on the RBA statement, closing just 14.2 points, or 0.2 percent, ahead at 7527.9.

The broader All Ordinaries also finished 0.2 per cent higher at 7833.2, while the Aussie was buying 76.10 US cents at the local close, having shot to 10-month highs on the central bank’s hawkish rhetoric.

Stocks had earlier risen by as much as 0.8 per cent to be about 60 points off the all time high set back in August, with the major banks particularly strong and tech stocks basking in the Nasdaq’s glow.

But the prospect of tighter monetary policy momentarily eroded confidence in equities and felt the Australian dollar climbing in line with the local bond yield.

“The RBA has hardened its language about inflation and the markets are pricing an RBA that begins to do what rates traders have been expecting for some time – hike rates, and hike them soon,” IG Markets analyst Kyle Rodda said.

“Essentially, the RBA is waiting for the hard, public data to be released and confirm that inflation is indeed overshooting the target band.”

Despite fading from earlier highs, there were still gains for most of the big banks.

Commonwealth Bank closed 0.6 per cent ahead at $104.36, Westpac gained 0.6 per cent higher at $24.05, National Australia Bank was up 0.3 per cent to $32.18 and Macquarie Group closed 0.5 per cent higher at $207.06.

ANZ fell 0.3 percent to $27.04.

Overnight news that tech billionaire Elon Musk had taken a 9 per cent stake in Twitter sent the social media platform surging 27 per cent and drove the Nasdaq 1.9 per cent higher.

Local tech shares appeared to take confidence from the development, with Afterpay owner Block Inc up 6.2 per cent to $191.44, Xero climbing 4.5 per cent to $108, Wisetech Global rising 2.6 per cent to $53.21, Altium 3.2 per cent higher at $35.40 and Appen 2 per cent better off at $7.02.

Energy shares also improved as possible genocide in Ukraine prompted threats of fresh sanctions against Russia and a more protracted conflict, boosting oil prices.

Woodside Petroleum rose 2.8 per cent to $33.93, Santos jumped 2.3 per cent to $8.10, AGL was up 2.6 per cent to $8.24 and Origin Energy rose 3.1 per cent to $6.63.

Weighing on the market were the mining giants, with BHP down 1 percent to $51.95 and Rio Tinto falling 0.4 percent to $120.24 even as iron ore topped $US160 a tonne.

Mineral Resources surged 5.7 percent to $59.67 on news of unprecedented lithium demand, but it was fairly patchy among the rest of the lithium players and gold miners.

Originally published as Markets wrap: RBA sharpens inflation focus, knocks wind out of ASX

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