RBA set to raise interest rates further, ASX falls

Australian stocks started the day lower, taking inspiration from global equity markets after Friday’s US jobs report indicated the Federal Reserve would likely continue aggressive monetary tightening to rein in inflation.

The RBA is expected to raise interest rates tomorrow and economists predict rates will rise between 25 and 50 basis points.

According to RateCity, if the RBA raises the cash rate by 0.25 percentage points, the average homeowner with $500,000 in debt and 25 years remaining will see their repayments increase by an additional $66.

The technical assumptions in the RBA board minutes assume that the cash rate could increase to 1.75% by the end of the year and reach 2.5% by the end of 2023 .

If that happens, the same borrower with a loan balance of $500,000 could see their monthly repayments increase by a total of $652 per month by Christmas next year.

“The board can stick to a standard 0.25 percentage point hike, but chances are it’s going to be tougher,” said Sally Tindall, research director at RateCity.

“With gas and grocery prices continuing to climb, the case for a 0.40 percentage point hike is strong.

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The ASX 200 was down 20 points, or 0.3%, at 7,212 at 10:09 a.m. AEST.

At the same time, the Australian dollar was up at 72.10 US cents.

Among the worst movers at open are Zip (-4.4pc), Magellan (-4.1pc) and Block (-4pc).

However, Whitehaven gained 1.9%, Beach Energy rose 1.5% and Woodside rose 1.6%.

US jobs report beats expectations

Global stock markets fell on Friday.

Data showed that the US economy generated more jobs than expected in May, signaling that the Federal Reserve is likely to continue raising interest rates in its effort to rein in inflation.

The closely watched US Department of Labor jobs report showed the US economy added 390,000 jobs in May, with the jobless rate holding at 3.6% for a third straight month, topping most analysts’ estimates.

Traders hoped the jobs report would reveal stronger signs of weakness in the US economy that would help persuade the Fed to ease its stance on inflation and interest rates to avoid triggering a recession.

“It was a strength across the board except retail, and the economy on the jobs front continues to grow,” said Josh Wein, portfolio manager at Hennessy Funds in Chapel Hill. , North Carolina.

“The Fed unfortunately still has to destroy demand a bit and it will continue to do so for at least the next few meetings with rate hikes of 50 points.”

The MSCI World Equity Index, which tracks stocks from 50 countries, fell 1.11%.

The pan-European STOXX 600 index also fell 0.26%.

On Wall Street, all three major indexes were dragged lower by sell-offs in the technology, consumer discretionary, communication services, financials and industrials sectors.

The Dow Jones Industrial Average fell 0.98% to 32,923.57, the S&P 500 lost 1.57% to 4,111.41 and the Nasdaq Composite fell 2.46% to 12,013.45.

“Part of the rally (in stocks) of late was due to the Fed recognizing that in the fall it might reassess and maybe take a break,” Wein said.

“But the market is retracing some of its earlier losses and basically saying that’s all irrelevant.”

Oil prices rose, supported by expectations that OPEC’s decision to raise production targets by a little more than expected will not affect tight global supply much and by rising oil asks as China eases restrictions related to the COVID-19 pandemic.

Brent crude was up, trading at US$121.41 a barrel as of 10:07 a.m. AEST.

ABC/Reuters