Evening Wrap: ASX 200 snaps winning streak as RBA bets on another rate cut

Like a Band-Aid. It stung for a little bit, and then it wasn't so bad. I am of course referring to the S&P/ASX 200's reaction to today's 0.25% increase in the RBA's cash rate. As always, there were winners, there were losers…

Let's dive in.

Could have been worse, ASX 200 reacts to rate hike (Source: Market Index)

Markets

The S&P/ASX 200 (XJO) finished 20.3 points lower as the Reserve Bank of Australia (RBA) increased its official cash rate by 0.25% to 4.35%. As you can see from the above intraday chart, there was a substantial wobble just as the news of the interest rate hike broke at 2.30pm AEDT. The XJO dipped temporarily to its session low of 6951.9 before steadily recovering through the rest of the session.

At 6,986.8, the XJO closed 0.5% off its low, and just 0.2% from its high. Advancers beat decliners roughly 138 to 132 in the S&P/ASX 300. Not a terrible day all things considered.

The S&P/ASX Information Technology Sector (XIJ) was the best performing, up 1.4%, as Nuix (ASX: NXL) +4.1%, Weebit Nano (ASX: WBT) +3.8%, Wisetech Global (ASX: WTC) +2.6%, Tyro Payments (ASX: TYR) +2.6%, Life360 Inc. (ASX: 360) +1.6%, Altium (ASX: ALU) +1.5% each prospered.

The losers' column was dominated by energy plays as crude oil, natural gas, and coal prices each fell overnight. Whitehaven Coal (ASX: WHC) -3%, Terracom (ASX: TER) -3%, New Hope Corporation (ASX: NHC) -1.7% and Karoon Energy (ASX: KAR) -1.6% struggled.

Economy

RBA dashes punters' hopes with Cup Day hike

The RBA said that whist inflation in Australia has passed its peak, it was "still too high", and is proving more persistent than the bank expected a few months ago.

The RBA justified today's hike by saying it would ensure inflation returns to the bank's 2-3% average target in a "reasonable" timeframe. Inflation remains the bank's main priority, despite it acknowledging "many households [are] experiencing a painful squeeze on their finances".

Indeed, the RBA predicted jobs would be lost as a result of its inflation fight. They now expect the unemployment rate to increase substantially from the current 3.7% to 4.25%.

The RBA also upped its forecast for CPI inflation to "around 3.5%" by the end of 2024, and mused it would likely now take until 2025 to reach the top end of its target range.

As for future rate hikes, the RBA Board noted this would "depend upon the data and the evolving assessment of risks". One interesting but miniscule shift in language has been construed as an indication November's hike might be an isolated one. The Board's official statement removed October's "Some further tightening…may be required", instead opting for "Whether further tightening…is required".

Make of that what you will. Either way, it's another kick in the guts for mortgage holders and a boon for those sitting pretty on cash.

Commenting on the decision, Treasurer Jim Chalmers remarked "this is a difficult day for people with a mortgage. This will tighten the screws further."

More bad news on China's economy

Trade data released today showed China’s exports slid again in October. The 6.4% decline was worse than the 3.3% decline forecast by economists, and also worse than September's 6.2% contraction.

For a generation, China's economy has been export-oriented, supplying goods to the rest of the world. If their exports are shrinking, there's a very good chance the global economy is also shrinking.

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• +8% Zip Co (ZIP) - Continuation rally

Trading lower

• -5% Chrysos (C79) - Completes A$75M placement at A$6.60 per share

• -2.7% Westpac Banking (WBC) - Reaction to FY23 results released 6-Nov

• -2.5% Develop Global (DVP) - Scheme of arrangement to acquire Essential Metals implemented

• -2.3% NZME (NZM) - Updated guidance

Broker notes

• Integral Diagnostics (IDX)

  • JP Morgan upgrades from neutral to overweight; Target falls from $3 to $2.50

• Westpac Banking (WBC)

  • Morgans downgrades from add to hold; Target falls from $21.58 to $21.68

  • Goldman Sachs raises price target from $22.61 to $22.70; Rating underperform

  • Barrenjoey raises price target from $21 to $22; Rating neutral

  • CLSA raises price target from $22.40 to $22.70; Rating outperform

  • Jarden raises price target from $21.40 to $21.60; Rating upgraded from underweight to neutral

• Telstra (TLS)

  • Jarden initiates coverage with buy rating and $4.30 target

• TPG Group (TPG)

  • Jarden initiates coverage with overweight rating and $5.40 target

• Sims (SGM)

  • CLSA upgrades from underperform to outperform

• Sigma Healthcare (SIG)

  • Morgans initiates coverage with add rating; Target $0.83

• Karoon Energy (KAR)

  • Citi initiates coverage with buy rating; Target $3.24

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