RBA board considered a rate hike, 'not ruling anything in or out'. Inquiry wants steps to combat supermarket giants' power. Earnings upgrade lifts AGL. ANZ profit down, $2bn buyback ahead. Sims tanks.
Welcome to the Trading Day blog for Tuesday, May 7. The ASX 200 index extended its gains after the RBA rate call and closed 1.4 per cent higher at 7793.30 points.
Nasdaq led gains on Wall Street overnight. The Aussie dollar is trading around US65.93c, falling after the RBA decision.
Insurance broker AUB Group says it expects its annual underlying net profit to be towards to the top end of its guidance range.
"As a result of favourable trading momentum, AUB Group Limited today announced that it is forecasting underlying net profit after tax for FY24 to be towards the top end of the outlook range of $161m – $171m previously announced to the market on 20 February 2024."
ANZ economists still expect the RBA to begin cutting interest rates, but say there are risks that the start of the easing cycle is delayed.
The RBA's post-meeting statement is less hawkish than expected, ANZ's head of Australian economics Adam Boyton and economist Madeline Dunk note.
They also note that the RBA's near-term upward revisions to its inflation forecasts are larger than ANZ had expected, with the RBA expecting headline inflation to end this year higher – at 3.8 per cent – than it was in the first quarter of 2024 (3.6 per cent).
But ANZ's views remain unchanged. "We continue to favour November for the start of the easing cycle, although the risks remain skewed toward that being delayed into 2025 and being shallower than we are forecasting (noting that we are only expecting three rate cuts in total)," Mr Boyton and Ms Dunk say.
Qantas' share price has surged above the $6 mark for the first time since former chief financial officer Vanessa Hudson replaced Alan Joyce as chief executive.
A 4.4 per cent increase saw Qantas shares close at $6.16, the highest since late August 2023.
The improvement followed Monday's announcement Qantas had reached a settlement with the Australian Competition and Consumer Commission over the sale of tickets on already cancelled flights.
The $120m deal included $20m for 86,597 customers impacted by the so-called ghost flights fiasco, with tickets continuing to be sold for up to 60 days after flights had been cancelled in the period from May 2021 to August 2023.
Ms Hudson conceded the ACCC lawsuit had been damaging to Qantas and she was hopeful the finalisation of the case would help with the airline's brand rebuilding strategy.
Customers entitled to a refund for $225 or $450 would be contacted from next month with Deloitte appointed to handle the remediation program.
Ms Hudson said it had taken a while to get a full understanding of what led to the sale of tickets on cancelled flights, with senior staff identifying problems with the systems used by Qantas.
Australia's share market soars to its highest daily close in almost four weeks as the RBA decides against a restart of rate hikes and the US market continues to soar on a dovish Fed statement and cooling labour market data.
In its best day in over three months and its second biggest daily rise this year, the S&P/ASX 200 index ends up 1.4 per cent at 7793.30 points.
The local share market began strongly after a 1 per cent rise in the S&P 500 then added a further 50 points after the RBA's decision statement, statement on monetary policy and Governor Bullock's press conference.
Unlike Fed chair Powell, Mr Bullock didn't say a rate hike was unlikely.
She said the board discussed a rate hike and no change in rates this month.
However, she said the board is "neutral" on the interest rate rate outlook after it kept its guidance that it's "not ruling anything in or out."
Notable outperformance came from the utilities, consumer discretionary, energy, industrials and tech sectors.
AGL soared 7.4 per cent on improved earnings guidance.
Westpac led banks with a 2.8 per cent rise as Citi and MS upped their targets.
Medibank Private jumped 4.9 per cent on positive claims guidance.
Sims Limited fell 6.4 per cent on a major profit warning.
There is a very high bar for hiking interest rates further but another upside surprise will "test the limits of the RBA's patience and credibility", according to Oxford Economics head of macroeconomic forecasting Sean Langcake.
Mr Langcake says the RBA board's statement following its May meeting made a strong case for higher rates, although they opted to stay the course and keep rates on hold.
"There is clearly a very high bar for raising interest rates further given the ongoing weakness in consumer spending and activity more broadly. But another upside surprise on inflation will severely test the RBA’s patience," Mr Langcake says.
He says the RBA is hoping it has already done the hard work to bring demand growth back under control, obviating more rate hikes that would exacerbate the current downturn in the economy.
"The current signal from the real economy is that this appears to be the case. But inflation is being stubbornly slow in following suit back to the target range. For now, the RBA has remained patient in allowing this process to play out.
"We still see our current forecast of one rate cut in late 2024 as the most likely outcome, but there is a sizeable chance the first rate cut comes in 2025."
Asked if an upside surprise on inflation would impact the Bank's credibility and whether that could be a "threshold issue" for the RBA to act, Ms Bullock says "I'm not gonna deal in a sort of a hypothetical there."
"Obviously credibility is really important…we need people to believe we're going to get inflation down.
"We don't want inflation expectations adjusted… we know petrol prices can be up they can be down so that to some extent…one thing I would say though, is that the forecasts now don't look a hell of a lot different than the November forecast in November, we increased interest rates.
"You'll recall we did what we sort of took out a bit of insurance. We thought we need a little bit of insurance and I think that stood us in good stead".
"I think that's one reason why we can say this meeting will just sit for a minute.
"If we hadn't raised in November, I think it might have been a different story.
"But if it does turn out that inflation starts declining…if inflation really, really gets stuck and gets stuck at a level which is inconsistent with our target band, then we're going to have to act and that goes to credibility."
RBA governor Michele Bullock says she hopes the RBA doesn't have to raise interest rates again, but "if we have to, we will".
"It (inflation) really hurts and I just find it myself if I were to fill up my car with petrol the other day and I got an absolute shock when when I saw the price of it now that that's something that's really obvious to people, but there's an underlying chunk of stuff here which is just eating into people's spending power for the whole the whole time," she says.
"So yes, it is frustrating, but I think we we feel when as I said we do feel we're on the right path and I come back to the point earlier that we we don't we try not to tip the economy into recession because because really, the worst thing that could happen for many people is to lose their jobs that would really tip them in.
"People can get work. They can get second jobs if they need to. There's a sense in which they can meet their needs by being employed and that's what we're really trying to preserve but frustrating might be one way of putting it."
RBA governor Michele Bullock is asked if the balance of probabilities has shifted from the need for a cut this year to perhaps the need for a hike.
"I think the moment so back in the last meeting, we thought that things were reasonably balanced," she says.
""I think we still think they're reasonably balanced with perhaps a little bit of a signal that we need to be very watchful on the upside.
"So I wouldn't think about it in terms of balance of probabilities.
"I don't ever think we said there was a balance of probabilities that would go down last time. I think I've been fairly careful to say, if we're being neutral, we're not ruling out an up or down and we're not rolling them in or out."
"So I don't think it's shifted the balance of probabilities dramatically.
"We still think things are reasonably balanced, but the cost on the upside is higher than it is on the downside if you hike…"
Challenged as to whether the RBA has done enough on interest rates, RBA governor Michele Bullock says "at the moment, our judgement as I said is that we are on the tight we have restrictive financial conditions and we see that in the household sector.
She cites IMF analysis showing how interest rates impact various countries and says "it's very clear that it impacts Australia very quickly because of our relatively high share of variable rate mortgages."
"We're very conscious that we have a dual mandate," Bullock says.
"Yes, we've got to get inflation down…we are trying very hard to get it down while maintaining employment growth and that's the balance where we're choosing. "Have we got a right have we got it wrong?
"We think at the moment, we're probably okay.
She says Australia's conditions "aren't the same as domestic conditions in other countries."
"We do have our own domestic conditions to consider and I think it's, it's as I said at the moment we think we've got it right, but things are uncertain, and if we have to move we will."
The RBA board considered the option of hiking rates this month as well as the option of keeping rates unchanged as it ultimately decided to do, RBA governor Michele Bullock says.
"Yes, that was one of the things that the board discussed," she says.
"So the board did discuss the option of raising interest rates.
"It discussed the option of keeping interest rates where they were as I said, on balance the board felt that the at the moment staying where they are was appropriate. We think that policy is currently restrictive.
"I think we've always felt that it was a bit too soon to declare victory.
"If we really think that inflation is going to be persistent and significantly above our forecast, we will tighten again.
"But the board made the judgement at the meeting, that the right stance at the moment is to stay where we are continue to observe what's going on in the economy, be data driven."
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