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Note from the MD: RBA’s shock rate hike the largest increase in 22 years

Another month, another rate rise – and while an increase wasn’t surprising given inflation continues to accelerate, the Reserve Bank’s decision to go the whole hog and increase the cash rate by a full 50 basis points certainly came as a surprise to many.
Another month, another rate rise – and while an increase wasn’t surprising given inflation continues to accelerate, the Reserve Bank’s decision to go the whole hog and increase the cash rate by a full 50 basis points certainly came as a surprise to many. In fact, it’s the largest single interest rate increase Australia has recorded in 22 years. In other words, there are people graduating university today who weren’t alive the last time rates increased this much in a single month. It’s a signal that the RBA is keen to wrangle inflation back under control, but even the Bank’s board acknowledged these increases are coming at a time when hip pockets across the country are bearing the painful brunt of higher living costs. In his statement yesterday, RBA governor Philip Lowe said he and his colleagues will be watching household spending throughout the year. At the present, they’re expecting spending to remain healthy (off the back of savings buffers grown during the worst of the pandemic), but changes in these habits will be considered when the board meets to discuss monetary policy settings. Markets did not take the news well. The benchmark ASX 200 index gave up almost 48 points in five minutes as the news of the hike spread, with the market ending the session down 110.6 points (1.5%). The Small Ordinaries (ASX: XSO) and Emerging Companies (ASX: XEC) indices followed suit, finishing the day down 1.38% and 1.92% respectively. The XJO’s short-lived golden cross appears to be reverting to a death cross, however a better way to interpret this technical pattern is an alignment of mid and long-term moving averages that are continuing to contribute to a common resistance level. The XJO pulled back before it could test these moving averages again, but we will be watching how important they will be in dictating price action over the short to mid term. Implied volatility is sitting around 16.81% for the index and its IV rank is at 39. We are seeing major support levels around 6940, 7000 and 7065. Major resistance levels are sitting around 7200, 50 and 200-day MAs (around 7300) and 7340. Meanwhile, expect to see investors – myself included – looking forward to next Tuesday’s experimental Monthly Household Spending Indicators data drop from the ABS. Given yesterday’s comments, I’m sure there will be many scouring the numbers for clues to next month’s RBA meeting, though I’d urge everyone to be sensible and not make rash, emotional decisions – we might know Lowe and his peers are watching spending, but we don’t know what they’ll be watching for or how it will influence them. Despite the market’s recent volatility, biotech company Prescient Therapeutics (ASX: PTX) has performed strongly over the past couple of months and, today, announced its latest product: a high-performance cell therapy platform capable of enhancing the effectiveness of CAR-T therapies – a novel treatment that is taking the cancer conversation from ‘fight’ to ‘cure’.  On Friday, 10th June at 12.30pm (AEST), we will be joined by the CEO of Prescient where he will give us an overview of its latest cell therapy enhancement platform and the opportunities that it opens up for Prescient. This will be a fascinating conversation for potential investors. Click here to attend. Reach Markets have been engaged by PTX to assist with their investor communications.
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