ASX closes up 0.4pc; RBA rules out rate cuts

Local shares finish higher after major sell off. RBA governor Michele Bullock says there will be no interest rate cut in the next six months. Wall Street bled overnight amid a global sell-off.  

Will Monday's market bloodbath change the RBA's approach to tackling inflation?

Welcome to the Trading Day blog for Tuesday, August 6th. The ASX 200 has closed 0.4 per cent higher at 7680.6 points following Monday's bloodbath and after US markets dived overnight.

The Aussie dollar is trading around 65.063c.

Updates

5:12 pm August 6, 2024

Nikkei closes up 10.2pc after record fall

Agency writers

Tokyo’s key Nikkei index closed more than 10 percent higher Tuesday, bouncing back from a record selloff the previous day on worries over the US economy and a stronger yen.

The benchmark Nikkei 225 index jumped 10.23 percent, or 3,217.04 points, to end at 34,675.46, while the broader Topix index added 9.30 percent, or 207.06 points, to 2,434.21.

On Monday, the Nikkei plunged more than 12 percent, or 4,451.28 points — the largest points drop in its history.

Prime Minister Fumio Kishida said Tuesday it was best to approach the sharp swings with a cool head, as analysts predicted that volatility could continue for days.

“The stock market has been moving again today, and I think it is important to judge this situation calmly,” Kishida said at a scheduled news conference.

“We will continue to monitor the situation with a sense of urgency and to carry out economic and fiscal management in close cooperation with the Bank of Japan,” he said.

Nomura Securities said the market would likely remain volatile this week.

“Today’s gain can be explained in one phrase: a technical rebound” after the sharp fall, it said.

IwaiCosmo Securities said concern over the US economy had been partially assuaged by a better-than-market-expected improvement in service-sector business sentiment for July.“

In Japan, real wages in June turned positive for the first time in 27 months, which also brought some relief,” the brokerage added.

The yen stood at 145.94 against the dollar, compared with 146.28 in early trade.

On Monday, the Japanese currency hit 141.70, its strongest value since early January.

A higher yen is a negative for Japanese exporters, and recent rallies were fuelled by central bank policy decisions that reversed months-long trends.

The Bank of Japan last week raised interest rates for the second time in 17 years, with talk of another rate hike to come, while the US Federal Reserve has hinted at a cut as soon as September.

Among major shares in Tokyo on Tuesday, Honda roared 14.70 percent to 1,435.5 yen following a report that it was expected to announce a record quarterly profit.

Toyota spiked 12.81 percent to 2,518 yen and Sony Group jumped 9.12 percent to 12,315 yen.

-AFP

5:00 pm August 6, 2024

Carsales cuts jobs amid overhaul

Eli Greenblat

Carsales, the nation’s largest online seller of cars, has triggered a restructure of some parts of its sprawling operations with the loss of at least 15 jobs as the broader car market struggles to drive growth due to a pullback in consumer spending and cost of living pressures on households.

Car Group, the $12.4bn business that owns Carsales as well as having other auto operations in Asia, North America and South America, has denied the job losses were as high as 35 – as believed by The Australian – and said the restructure was “small” and part of the ordinary flow of business.

A spokeswoman for Car Group declined to comment further due to the ASX-listed company currently in a blackout in the lead up to the release of its full-year results on August 12.

4:47 pm August 6, 2024

Super Retail Group beefs up board

Eli Greenblat

The workplace scandal and legal battle swirling around Super Retail Group hasn't stopped it attracting new talent to its board, with the former chief financial officer of Qantas and AMP and onetime deputy CFO at Woolworths, Colin Storrie, appointed as a director.

Super Retail, which owns Rebel, Macpac, BCF and Supercheap Auto, said Mr Storrie will join the board audit committee and will chair the committee when serving director Judith Swales commences as Super Retail chairman at the conclusion of the annual general meeting on October 24.

Mr Storrie is currently a director of Petstock, PFD Food Services, North Queensland Airports and Quantium, and was previously on the boards of Endeavour Group, Qantas Airways, AIG Australia and Star Track Express.

4:40 pm August 6, 2024 Highlight

ASX 200 ends up 0.4pc as Nikkei soars 10pc

David Rogers

Australia's stock market rose for the first time in three days as a brutal selloff in global risk assets was halted by a major rebound in Japan's stock market.

The ASX 200 index ended up 0.4 per cent at 7680.6 after rising to 7713.7 as the Nikkei 225 rose as much as 12 per cent. The Nikkei closed up 10 per cent after Monday's 12.4 per cent plunge that compounded global risk aversion in global markets.

A recovery in global risk assets that started overnight after the US ISM Services survey showed recession fear that was sparked by the Manufacturing survey and weak non-farm payrolls data was premature. But volatility remained extreme.

A "hawkish hold" on interest rates by the RBA exacerbated a selloff in bonds that started after the US ISM data, but it didn't have any impact on the ASX 200.

Seven of 11 ASX sectors rose with gains led by the consumer discretionary, financials, property and industrials sectors. Wesfarmers rose 2.3 per cent, CBA jumped 2.2 per cent, Goodman rose 2.2 per cent and Brambles jumped 1.8 per cent.

Woodside dived 5.1 per cent as analysts questioned its latest US acquisition.

Newmont fell 3.4 per cent and Pro Medicus lost 6 per cent.

Audinate plunged 36 per cent on very disappointing FY25 guidance.

3:59 pm August 6, 2024

RBA seriously considered rate rise: Bullock

Rosie Lewis

The Reserve Bank board seriously considered a rate rise at Tuesday’s meeting, with inflation forecast to come back into its target band of 2 to 3 per cent at the end of 2025.

"It (a rate rise) was a very serious consideration," governor Michele Bullock said.

“The board felt that the risks associated with raising at this point, as opposed to holding where we are and just staying where we are, warranted the second alternative, which is what we did."

3:56 pm August 6, 2024

'Near-term' rate cut off table: RBA governor

Rosie Lewis

Reserve Bank governor Michele Bullock has taken a “near-term” rate cut off the table, meaning there will be no cut or relief to mortgage holders in the next six months.

“Based on what I know today and what the board knows today, what we can say is that a near-term reduction in the cash rate doesn't align with the board's current thinking,” she said.

“We've seen from overseas experience how bumpy inflation can be on the way down and across the economy. We need to see demand and supply coming back into better balance.

"I understand that this is not what people want to hear. I know there are many households and small businesses that are struggling with interest rates where they are. Many people are doing it tough, and we're very conscious of that. The board is very conscious of that.

“But really the best thing we can do, and I've said this before, the best thing we can do is to bring inflation back down to target, because we can't let inflation get away. It hurts everyone.”

3:48 pm August 6, 2024

Inflation still too high: RBA's Bullock

Rosie Lewis

Reserve Bank governor Michele Bullock says there is a risk inflation will take too long to return to target, warning it is still too high.

She said the RBA board remained concerned about the degree of excess demand in the economy.

“The amount of goods and services that households and businesses and government want to buy and need, that's more than the amount that the economy can sustainably provide supply,” Ms Bullock said.

“We're trying to bring demand back into balance with supply and get the inflation rate back into the target band of between 2 per cent and 3 per cent. But the fact is that the progress on bringing inflation down has been very slow for a year now. And while growth of demand has been slow, there's actually no guarantee that supply and demand will return to balance quickly enough.

“What we really need to see is the underlying pulse of inflation.”

The RBA has revised up its forecasts for demand growth due to "stronger" government spending and an expected pick up in household consumption.

“We've got conditions in the labour market easing gradually, but they're still tight,” Ms Bullock said.

“Average hours worked and the participation rate have been holding up. Vacancies have come down, but they're still higher than they were before the pandemic. Wages growth appears to have peaked, but it's still high.

“The growth of unit labour costs, and that's what it's actually costing businesses to employ workers for what they output, that remains elevated, and that's a key. And a key reason for that is because productivity growth remains pretty slow.

“These are all the forces that you think inflation might remain a bit higher for longer. And that might result in interest rates remaining higher for longer.”

3:18 pm August 6, 2024

RBA no closer to dropping rate hike bias: Capital Economics

David Rogers

Despite the recent rout in global financial markets, the RBA Board gave no indication that it had come closer to dropping its tightening bias, Capital Economics says.

"Data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out”, the board said.

Capital Economics ANZ economist Abhijit Surya says markets were "overly sanguine about prospects for policy loosening. A rate cut was fully priced for December.

"Bear in mind that the RBA’s new set of forecasts are based on the technical assumption that interest rates will remain at their current level until at least year-end," he said.

"The Bank thinks it will be several quarters before underlying inflation returns to target.

"The upshot is that we’re sticking to our view that the RBA will cut rates only in the first half of next year."

2:55 pm August 6, 2024

Outlook ‘remains highly uncertain’: RBA

David Rogers

The Reserve Bank board repeats its warning that the economic outlook “remains uncertain and recent data have demonstrated that the process of returning inflation to target has been slow and bumpy"

Previously it said this process is "unlikely to be smooth”.

But it also says its forecast of a slightly slower return to target than forecast in May, is based on estimates that the gap between aggregate demand and supply in the economy is "larger than previously thought."

"In part, this reflects an increase in the forecast for domestic demand.

"But it also reflects a judgement that the economy’s capacity to meet that demand is somewhat weaker than previously thought, evidenced by the persistence of inflation and ongoing strength in the labour market."

It continues to note upside risks to inflation revisions to consumption and the saving rate in the most recent national accounts, high unit labour costs and the persistence of inflation, particularly in the services sector.

But it notes the two-way uncertainty on the consumption outlook, lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to slower growth in the economy at a time of excess demand, and tight labour market conditions.

It still notes a “high level of uncertainty about the overseas outlook as China's economy has "softened" hitting commodity prices.

"Globally, financial markets have been volatile of late and the Australian dollar has depreciated," the board says.

"Geopolitical uncertainties remain elevated, which may have implications for supply chains."

2:50 pm August 6, 2024

Returning inflation to target remains ‘highest priority’: RBA

David Rogers

The Reserve Bank board maintains its guidance that lowering inflation to its 2-3 per cent target within a reasonable timeframe remains its “highest priority”.

“The board needs to be confident that inflation is moving sustainably towards the target range,” it says in its post-meeting statement. “To date, medium-term inflation expectations have been consistent with the inflation target, and it is important that this remains the case.”

"Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet, before inflation is sustainably in the target range.

"Data have reinforced the need to remain vigilant to upside risks to inflation, and the board is not ruling anything in or out."