Market wrap: Energy surge can’t lift ASX ahead of expected RBA rate hike

The Australian sharemarket started the week lower as traders steeled themselves for another interest rate hike.

Energy stocks surged into a new week but ASX investors were otherwise subdued on Monday, with one eye on an imminent interest rate hike.

Technology stocks were smashed, while the mining and banking sectors also stumbled into a new week, as the benchmark ASX 200 dropped 32.5 points, or 0.5 per cent, to finish at 7206.3.

The broader All Ordinaries lost 39.3 points, or 0.5 per cent, to 7433.1, while the Aussie dollar remained steady and just above 72 US cents at the local close.

Monday’s droop came ahead of a widely expected Reserve Bank interest rate hike on Tuesday, the only question being whether Governor Philip Lowe will announce a rise of 25 basis points, 40 basis points, or 50.

The benchmark ASX 200 dropped 32.5 points, or 0.5 per cent, on Monday to finish at 7206.3. Picture: NCA NewsWire / Jeremy Piper

The RBA five weeks ago began a steep hiking cycle in order to take the heat out of a red-hot economy and keep a lid on the inflation roiling global markets.

The prospect of higher rates, however, is often taken by equity investors as a sign company profits will not be as strong, because growth will likely slow down.

Higher borrowing costs are particularly harsh for companies valued for their future growth, as demonstrated by decline for a number of big name tech firms.

Afterpay owner Block Inc dropped 3.2 per cent to $115.95, Xero was 1.5 per cent down at $84.38, Wisetech Global shed 2.3 per cent to $41.94 and Tyro Payments slumped by 8.4 per cent to 93 cents.

Also denting sentiment on Monday was the prospect of steeper rate hikes in the US, where better-than-expected employment data on Friday hinted at a similarly robust economy which could do with some reining in.

As for Tuesday’s rate rise from the RBA, Betashares ETFs senior economist, David Bassanese, said a 25 basis point hike to 0.6 per cent was the most likely outcome, even though many others were tipping a jump of 40 or 50 basis points.

Energy companies improved as crude oil rose above $US120 a barrel. Picture: Mladen ANTONOV / AFP

“To my mind, the RBA should and will deliver only a 0.25 per cent hike – consistent with its return to pre-pandemic ‘business as usual’ incremental rate hikes,” Mr Bassanese said.

“Indeed, if the RBA could not justify hiking rates by 0.4 per cent last month, I can’t see what justifies such a large move this month – especially given headline inflation remains much more contained than evident in peer countries in such as the US, Canada, New Zealand and even Germany.

“A large move also risks appearing panicked and could unnecessarily hurt business and consumer sentiment, and might perversely heighten inflation fears.”

Adding to the recent volatility has been a rise in oil prices, which continue into the weekend.

While adding to the inflation narrative, the rise back above $US120 a barrel also lifted energy stocks higher once again.

Monday’s fall came ahead of a widely expected Reserve Bank interest rate hike on Tuesday. Picture: NCA NewsWire / Jeremy Piper

Woodside Energy leapt 3.2 per cent to $32.83, Santos rose 2 per cent to $8.57, Beach Energy was 1.4 per cent higher, Origin Energy climbed 1.1 per cent to $6.23 and coal miner Whitehaven rose 0.7 per cent to $5.45.

There was little else to cheer about at the top end of the ASX on Monday with the blue chip banks and miners in the dumps.

Commonwealth Bank fell 0.5 per cent to $104.68, Westpac dropped 0.3 per cent to $23.92, NAB shed 0.5 per cent to $31.10, ANZ fell 0.8 per cent to $24.82 and Macquarie Group ended 0.6 per cent lower at $182.90.

BHP was 0.9 per cent down at $46.34, while Rio Tinto lost 0.2 per cent to $115.77 and Fortescue Metals slipped 0.3 per cent to $21.40.

Retail conglomerate Wesfarmers rose 0.6 per cent to $47.41 and Woolworths gained 0.5 per cent to $34.80, but Telstra slipped 0.8 per cent to $3.89 and Qantas fell 3.1 per cent to $3.32.

Originally published as Market wrap: Energy surge can’t lift ASX ahead of expected RBA rate hike