Evening Wrap: ASX 200 higher, cooler-than-expected inflation data sets RBA to pause rate hikes

Cooler-than-expected inflation data pushes the ASX 200 into positive territory, the data supports an RBA pause at its interest rate meeting next week and ASX interest rate futures expect rates to fall closer to 3.0% by August 2024.

Let's dive in.

ASX 200 Session Chart

ASX 200 rallies on cooler-than-expected CPI data at 11:30 am AEDT (Source: Market Index)

Markets

The ASX 200 rallied from session lows of -0.32% thanks to much cooler-than-expected inflation data.

• Materials led to the upside thanks to gains from Fortescue (+2.9%), Pilbara Minerals (+2.3%) and BHP (+1.4%)

• Energy followed close behind as oil prices are up 6.5% in the last three sessions

• Financials were weaker with NAB (-2.2%) mitigating CBA (+0.3%)

Economy

Australia’s monthly inflation indicator eased to 6.8% in February from 7.4% the previous month.

• Consensus expected inflation to ease to 7.1%

• “This marks the second consecutive month of lower annual inflation, also known as ‘disinflation’, from the peak of 8.4 per cent in December 2022.” – Michelle Marquardt, ABS Head of Prices Statistics

• “The annual increase for the Housing group in February (+9.9 per cent) was lower than January (+10.4 per cent). New dwellings grew 13.0 per cent in the 12 months to February which is the lowest annual growth since February 2022 as price rises for building materials continue to ease.”

• “Rent prices rose again due to the tight rental market, maintaining the 4.8 per cent annual growth recorded in January.”

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Market Insights

More evidence to pause

Softer-than-expected CPI data coupled (plus flat retail sales, depressed consumer confidence and signs of a slowing jobs market) supports the case for the RBA to pause at next week's interest rate decision.

Monthly inflation indicator (Source: ABS)

Interest rates futures have continued to price in cuts in 2024. Two weeks ago, the implied futures curve was flat around 3.5%. Now, its expecting rates to ease close to 3.0% by August 2024.

ASX 30 day interbank cash rate futures (Source: ASX)

Interesting news and movers

Trading higher

• +13.0% Highfield Resources (HFR) – Construction licence granted for Muga

• +3.9% Centaurus Metals (CTM) – Drilling results

• +2.3% Pilbara Minerals (PLS) – Production capacity increase

• +0.5% Karoon Energy (KAR) – Outlook for Bauna and Patola operations

• Gold sector move: Gold Road (+3.1%), Perseus (+2.2%), Northern Star (+2.0%), Evolution Mining (+1.3%)

Trading lower

• -41.7% Jervois Global (JRV) – Suspends final construction at Iadho Cobalt

• -5.7% Betmakers (BET) – 15m share block trade at 16 cents (Tues)

Broker updates

Macquarie on the Australian Energy Sector & Ratings: 

• “Gov’t deal with crossbench (Greens) imposes stricter requirements on new gas projects, but secured passage of Safeguard Mechanism reforms.” 

• “Safeguard reforms will require net zero reservoir emissions from new gas projects to backfill existing LNG plants. Targets Barossa, Waitsia, Browse.”

• “New gas fields developed to supply existing LNG plants will now require net zero reservoir emissions from first production, rather than a reducing baseline.”

• Santos: Outperform with $10.00 target price

• Karoon: Outperform with $3.15 target price

• Woodside: Neutral with $35.00 target price

• Beach Energy: Neutral with $1.50 target price

Citi on Australian Retail Sales:

• “We think growth in retail spending over 2023 will be a balance between headwinds like travel spending normalisation, cost of living pressures and growing interest expense burden against very buoyant wages and employment outcomes, and a large savings buffer.”

• “Although Food inflation appears to have peaked in November/December 2022, it should still provide lingering support over 2023.”

• “Household goods sales should moderate rather than collapse, aided by the large savings buffers, and entrenched WFH habits.”

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