Yesterdays was all about the RBA with a little NSW COVID news thrown into the mix with neither feeling particularly bullish for stocks. Tuesday saw weakness pick up steam throughout the day with the market closing on its lows down -0.7%. Selling was broad based with over 75% of stocks closing in the red for the day led by declines in the Financial, Healthcare, Retail and IT stocks with only the Energy Sector making a reasonable attempt to rally. Gladys hinted that NSW may see an extension of sorts to its current lockdown but I don’t feel that weighed too heavily on the market but of course it didn’t help.
Moving onto the RBA who were always likely to exert the most influence on the ASX yesterday, firstly let’s look at what they said / did after adopting a more hawkish stance i.e. adopting a view which is more aligned towards interest rate hikes:
- Official interest rates were left at 0.1% and the RBA reiterated their core scenario to not raise until 2024 although they did open the door to go earlier, bond markets are “betting” hikes will come much sooner.
- The RBA have scaled back their bond buying program from $5bn p.m. to $4bn which will again be reviewed in November, the move is in-line with the Australian economy recovering from COVID faster than expected.
The futures market often leads as the name suggests with cash rates now pricing in two rate hikes over the coming 2-years and three by the RBA’s 2024 timeline, poor Philip Lowes et al are being ignored! History tells us central banks have an average track record of calling rates however in this case I’m sure they’re not too worried that Australians are starting to brace themselves for the inevitable higher rate environment over the years ahead.
Equities have rallied strongly post both the GFC and COVID but as the huge tailwind of almost zero bond yields starts to be removed / priced out by traders another pullback feels a very real prospect. MM’s ideal target is the 7000 area, with the 6750 our worst case at this point in time.
Overnight US stocks were mixed with the Dow falling -0.6% as the value stocks fell while the tech based NASDAQ rallied +0.4%, the SPI futures are calling the ASX to open around unchanged which feels optimistic to me with BHP down 60c in the US.
MM remains a keen buyer of market dips with the 7000 area the first technical support area
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