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Note from the MD: RBA interest rate reprieve lifts local market

Local markets have been buoyed by the Reserve Bank of Australia’s (RBA) decision to keep rates on hold at 4.1%.
Local markets have been buoyed by the Reserve Bank of Australia’s (RBA) decision to keep rates on hold at 4.1%. It was a surprise decision for many, with the National Australia Bank, ANZ and Westpac all tipping a quarter point move. The Commonwealth Bank called it correctly, predicting that last week’s softer-than-expected inflation data would convince the RBA it was time to hit pause. After two consecutive hikes and 12 rises in total since May last year, mounting fears of a potential recession also probably helped sway the decision. While the RBA is determined to curb spending at home, Australians are ramping up spending abroad. New research from Flight Centre reveals 90% of Australian travelers plan to travel internationally within the next year, with almost 85% intending to spend the same or more than they did pre-COVID on their trips and holidays. The long awaited post-pandemic travel recovery looks to be in full flight. In overseas markets overnight, European shares closed slightly higher, while US markets were closed for the July 4th holiday. Back to local markets, the RBA rate pause yesterday had an immediate impact on traders’ sentiment, with the ASX 200 jumping 0.7% following the decision, before finishing the session 0.5% in the green, the highest level since June 21. Interest rate sensitive stocks within the A-REIT and Financials sectors rallied after the rate decision – but pause is the operative word. The economic consensus is for a peak cash rate of 4.6% in August, with the first cuts being pushed out to May 2024. Meanwhile, the RBA says it will continue to pay close attention to developments in the global economy, trends in household spending, and the forecasts for inflation and the labour market. A key determiner will be inflation data for the June quarter, ahead of its next meeting in just under four weeks time.  The XJO has climbed higher recently closing above the 50-day moving average, in a bullish movement following the previous week’s rapid decline. Due to the recent strength this has put the XJO in a bullish trend and looks to continue climbing higher and retest the multi-month resistance at 7364. With the index moving higher it has seen implied volatility move lower back to a IV rank of 5. As a result it might be worth investors taking advantage of this and buying volatility in case they foresee volatility returning. Meanwhile, local mining investors will take heart from the World Mining Congress in Brisbane. Federal Treasurer, Jim Chalmers affirmed mining’s role in the future green economy, stating its value to the country had never been so “certain” or more “secure.” One investor and resource industry executive who has deep international experience across multiple commodity markets, including previous commercial roles with Rio Tinto overseeing a US$64 billion Cu-Mo project, is Joseph Webb, Managing Director of Mine Discovery Fund Pty Ltd (MDF) – a private investment vehicle focused on the discovery of base and precious metals. Joseph will be joining us on Friday 7th July at 12pm (AEST) for The Insider: Meet the Fund Manager webcast, where he will discuss why the push for decarbonisation makes copper the ‘main game’ in mining. He will also provide insights into two MDF portfolio companies who had major discoveries. To join us for this session, click here. Past performance is not a reliable indicator of future performance.
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