The Overnight Report: Pause For Effect

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This story features REA GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: REA
The company is included in ASX100, ASX200, ASX300, ALL-ORDS and ALL-TECH

By Greg Peel

A Cause for Pause

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve. The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the economic outlook and associated risks.

“In making its decisions, the Board 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.

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

The ASX200 was down -14 points at 2.30pm yesterday and up 39 ten minutes later.

Why did the RBA pause? Because “some households are experiencing a painful squeeze on their finances”.

Which makes the pause appear more compassionate than empirical, but ANZ Bank economists note the statement omits references about upside risks to inflation that were contained in the June statement, and those omissions did tend to give the July statement a “dovish feel”.

ANZ is sticking with its 4.60% peak rate forecast nevertheless, having expected a hike yesterday, but the timing is now a little less certain.

Westpac economists are of the same mind, expecting hikes in August and September. They note the April (previous pause) and July meetings precede the next quarterly inflation data and the pattern has been one of pause in January (no meeting), two hikes, pause in April, two hikes, pause in July…

It was good news for the banks (+1.1%). Less pressure on mortgages and other loans outweigh the potential benefits of higher margins, but stiff competition is making higher margins more difficult.

Real estate was also a winner (1.0%), but discretionary was rather subdued (+0.2%).

Energy topped the chart with a 1.2% gain on higher oil and coal prices, while materials had a quiet one (+0.1%).

Communication services, healthcare, industrials and utilities posted slight falls, as did technology.

Staples managed 0.2%, thanks to Costa Group ((CGC)) adding another 12.8% post takeover offer.

Investors in Domain Holdings ((DHG)) must have assumed another hike would be enough to get more listings on to the market, as it fell -3.7% to be the worst index performer. Rival REA Group ((REA)) rose 0.6% nonetheless.

The two-year bond yield barely moved on the RBA statement, but had fallen a full -17 points the day before on a punt on a pause.

The ASX200 is now more solidly above 7200. We next move to the Fed’s decision later this month.

Commodities

From August 1, China will impose export controls on gallium and germanium as well as several chemical compounds involving the two materials.

Yes, shocking.

Gallium and germanium are used in the making of semiconductors and other electronic components. Chinese military analysts said the export controls, particularly those on gallium, could hit the US defence industry. This is clearly retaliation for the US ban on exporting AI chips to China.

China accounts for about 85% of global gallium reserves.

Otherwise, a little bit of green on the screen makes a nice change.

Despite the pause, the Aussie is up 0.3% at US$0.6695.

Today

The SPI Overnight closed down -12 points or -0.2%.

The eurozone reports May PPI tonight, which is always one to watch.

Global services PMIs for June are due.

The minutes of the June Fed meeting are out tonight.

Nickel Industries ((NIC)) holds its AGM today.

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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