Evening Wrap: ASX 200 surges 3.75% after RBA marks world's first pivot to smaller rate hikes

The S&P/ASX 200 closed 242 points higher, up 3.75%.

The local sharemarket ripped higher after the RBA became the first major central bank to slow the pace of interest rate hikes, Australian loan commitments continue to fall and some post markets thoughts about this massive move up.

Let's dive in.

ASX 200, All Ords and All Tech intraday overview

Markets

What a crazy day. More thoughts in the Post Market Brief section below.

• All 11 sectors were green

• Tech, Materials, Energy, Real Estate and Financials rallied more than 4%

• Defensive sectors including Health Care, Telcos, Staples and Utilities underperformed

• 91% of the top 200 advanced

Announcements

• Paradigm Biopharmaceuticals (ASX: PAR) +19.8% achieved its primary endpoint and positive top-line results for an osteoarthritis biomarker phase 2 clinical trial

• Sayona Mining (ASX: SYA) +13.3% is fast-tracking plans for downstream operations in Quebec, launching a pre-feasibility study for potential lithium carbonate production

• Mayne Pharma (ASX: MYX) +5.6% completed the sale of its Metrics Contract Services business for $722m. Proceeds will be used to repay debt and capital return to shareholders 

• Evolution Mining (ASX: EVN) +5% secured a long-term power supply agreement for its Cowal Gold operation. Cowal accounts for approximately 8% of the company’s total energy costs  

• Bigtincan (ASX: BTH) +0.95% confirmed recent media speculation about a non-binding, indicative proposal to acquire LiveTiles for 7 cents per share 

Economy

• Australian housing loan commitments fell -3.4% month-on-month in August from -7.0% in July

  • “The value of new owner-occupier loan commitments fell 2.7 per cent in August 2022, and the value of new investor loan commitments fell 4.8 per cent" said Katherine Keenan, Head of Finance and Wealth at the ABS

  • “Although lending continued to fall from the high levels of June 2022, the value of loan commitments in August remained elevated compared to pre-pandemic levels. Owner occupier loans in August were 36 per cent higher than February 2020, while investor loans were 70 per cent higher."

• Australian building permits jumped 28.1% month-on-month in August from -18.2% in July

  • "Approvals for private sector dwellings excluding houses rose 99.1 per cent in August., with a sharp bounce back in apartment approvals driving the result. The strong upward movement in August follows a weak July result, which had the lowest number of other residential dwellings approved since January 2012," said Daniel Rossi, Head of Construction Statistics at the ABS

• RBA hikes interest rates by 25 bps to 2.60%

  • Analysts widely expected a 50 bps hike

Key comments from Governor Lowe:

• Rates have risen quickly: "The cash rate has been increased substantially in a short period of time. Reflecting this, the Board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia."

• The lag between monetary policy and the real economy: "Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments."

• Inflation expectations: The Bank’s central forecast is for CPI inflation to be around 7.75% over 2022, a little above 4% over 2023 and around 3% over 2024.

• What the RBA is watching: "It is closely monitoring the global economy, household spending and wage and price-setting behaviour."

Commodities 

• Iron ore futures rose 0.9% to US$94.4 a tonne

Latest news

Post market brief

What. On. Earth. Is. Happening.

US markets handballed us a strong session, with the S&P 500 closing 2.59% higher. The month of October represents a seasonal low for US markets and also called the 'bear market killer' - as 6 of the past 17 bear (or near bear markets) since world war II ended in this month, according to Carson Investment Research.

So off we go, up around 2.5% around 2:29 pm AEST. A 'bear market bounce' amid selling exhaustion and short covering from oversold levels.

We then see something completely left field - a world first, central bank pivot. A humble 25 bp rate hike as other central banks continue to rush to raise interest rates. But this is exactly what markets have been longing for. So we rally. And fast.

A 2.5% gain quickly turns into a 3.6% just minutes after. And we rally into close, up 3.75%.

Participation was broad-based, pretty much everything rallied. Heavyweights like Commonwealth Bank (ASX: CBA), BHP (ASX: BHP) and Woodside (ASX: WDS) all rallied around 4%. Stocks from popular growth sectors like tech, lithium and uranium rallied much more.

Charts

S&P/ASX 200: What a massive rip. The next few days will be key. Can the market hold onto these gains and consolidate on the rally, or will we see these gains fizzle. The RBA has given the market an extra kick, but this is still a bounce from oversold levels.

The ASX 200 has managed to reclaim the 20-day moving average. It's a start but a one day rally does not make up for the past 5-6 weeks of misery. What bulls need to see is a healthy pullback after such a massive rally. The pullback needs to be orderly, without the characteristics we've been seeing in the past few weeks (high volatility, intraday selling, stocks failing to hold key price areas). An orderly pullback would further validate the June low/recent low.

XJO chart (Source: TradingView, Annotations by Market Index)

Scans