Evening Wrap: RBA unexpectedly hikes to 3.85%, ASX 200 tumbles led by REITs and telcos

 The S&P/ASX 200 closed 67 points lower, down -0.92%. 

Pause? What pause? The RBA unexpectedly hiked by 25 bps, which triggered a knee jerk selloff for markets. Real Estate and telcos led the decline, tech stocks held up surprisingly well, the AFR's rumour about a new Liontown bid was false and a few Macquarie notes of interest.

Let's dive in.

ASX 200 Session Chart

The ASX 200 nosedives on the RBA rate hike (Source: Market Index)

Markets

The ASX 200 was down around 0.2% until the unexpected rate hike hit at 2:30 pm AEST. This triggered a sharp selloff to session lows of -1.18% and the market closed a little off those levels. Now that the bulk of US earnings season is out of the way, focus is shifting back onto the key inflection topics: Hard vs. soft landing and higher for longer vs. rate cuts. As for the latter, markets continue to price in one thing while central banks say the other. Is the unexpected rate hike something the market will forget about in a few days time or is this the beginning of a major pullback?

• Tech Index faded from session highs of 1.4% to close around breakeven

• Rate-sensitive Real Estate stocks nosedived on the hike, closing at session lows

• Telcos were also hard hit, with heavyweight Telstra down 2.3%

Economy

The RBA raised interest rates by 25 bps to 3.85%.

• Consensus expected rates to remain unchanged at 3.6%

• "Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range. Given the importance of returning inflation to target within a reasonable timeframe ... a further increase in interest rates was warranted."

• "The Board remains alert to the risk that expectations of ongoing high inflation contribute to larger increases in both prices and wages, especially given the limited spare capacity in the economy and the historically low rate of unemployment."

• "The central forecast is for the economy to continue growing, albeit at a below-trend pace; GDP is forecast to increase by 1¼ per cent this year and around 2 per cent over the year to mid-2025."

• "Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve."

Latest news

Market Insights

RBA hike: Intraday pain for REITs and Telcos

Stocks were chugging along until the unexpected rate hike hit. The below chart shows the intraday performance of a few household stocks from various sectors.

• ASX 200 (Yellow)

• Wisetech (Blue)

• Commonwealth Bank (Purple)

• Goodman Group (Green)

• Woodside (Red)

• Telstra (Orange)

ASX 200 and stocks intraday

Lithium fade:

Last night, the AFR reported an unnamed bidder that's been buying up a stake in Liontown for up to $2.75 per share and suggesting that the bid was around that level.

Local lithium stocks experienced a strong open on Tuesday, with names like Pilbara Minerals and Core Lithium both up around 3.0%.

At 11:19 am AEST, Liontown advised that "it has not received any takeover proposals, including any non-binding indicative proposal, since the rejection of the Albemarle proposal on 28 March 2023."

You can see PLS and CXO experience a strong open followed by a little uncertainty, and when the uncertainty was confirmed, the stocks gave back all of their gains.

Pilbara Minerals (blue) and Core Lithium (orange)

Interesting news and movers

Trading higher

• +21.5% 4D Medical (4DX)

• +13.9% Weebit Nano (WBT) 

• +6.8% Global Lithium (GL1)

• +5.8% Cleanaway Waste (CWY) – Reaffirms guidance

• +3.8% Emerald Resources (EMR)

Trading lower

• -9.2% Lindian Resources (LIN)

• -4.8% Computershare (CPU) – Reaffirms guidance

• -3.6% Endeavour Group (EDV) – Earnings

Broker updates

Macquarie notes:

Argosy Minerals (AGY): Outperform with $0.80 target price

• “Production trials at Rincon have now produced over 13.5t of battery grade lithium carbonate.”

• “2QCY23. Securing the outstanding Argentinian Government approvals to progress with the 10ktpa full-scale development of Rincon presents a material catalyst for AGY.”

Galan Lithium (GL1): Outperform with $1.70 target price

• “GLN has upgraded the resource estimate for the Hombre Muerto West (HMW) by 13% to 6.6mt LCE @ 880mg/L.”

• “The receipt of all approvals to allow construction of the Hombre Muerto West (HMW) Pilot project present a key near-term catalyst.”

Megaport (MP1): Neutral with $6.00 target price

• “Cost-out executed with $18m of annualised cost savings identified. VXC repriced as well.” 

• “Positive update and faster-than-expected execution of cost-out and price uplift of existing product. Longer-term demand resilient but near-term limited sales team a headwind to growth, in our view.”

Transurban (TCL): Outperform with $14.65 target price 

• “Macro characteristic like strong population growth is translating into traffic growth and ultimately a dividend recovery.” 

• “Dividend uplift is a mild positive, in our view, but more significant for investors is the upbeat commentary about the macro environment, i.e. growing population, inflation moderating and bond rates declining.”

• “Defensive stock with a rebounding dividend, set to continue to grow at +5%pa over next three years.” 

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