Market has strong run on rate rise

Winning streak lasts six days

THE sharemarket extended its winning streak to six sessions on Tuesday following the Reserve Bank’s 50 basis point increase to the cash rate.

The ASX 200 added 5.13 points, or 0.1 per cent, to 6998.10 – having been down by 0.4 per cent prior to the RBA rate decision. The benchmark index is now one session away from equalling its best streak for 2022 of seven consecutive days in March. The broader All Ordinaries closed 3.44 points higher to 7216.40.

Markets cut losses after RBA Governor Philip Lowe’s statement, which Barclays noted showed an ease in “hawkish language”.

“The board places a high priority on the return of inflation to the 2–3 per cent range over time, while keeping the economy on an even keel. The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments,” Dr Lowe said.

Baker Young managed portfolio analyst Toby Grimm said the wording of the RBA’s statement suggested that “maybe we are seeing the peak of the aggressive rate hikes and the pace of rises might slow from here”.

“It seemed to water down the determination we have seen in previous statements,” he said.

Slower and fewer future rate rises could mean “the economic damage won’t be as bad and detrimental for corporate earnings and share prices,” Mr Grimm said.

Following the 50 basis point hike to 1.85 per cent in the cash rate on Tuesday, Commonwealth Bank economists expect an increase of the same magnitude next month. CBA expects the cash rate to peak at 2.6 per cent, following a 25bp rise in November. “The risk is that rates could be lifted too far, too fast and result in a major check to economic momentum,” CBA economists said.

But VanEck head of investments and capital markets Russel Chesler said there was a renewed sense of positivity in equity markets with many investors looking to redeploy capital.

“No one rings a bell to say we’ve reached the bottom, but we are seeing investors increasingly look to take opportunities, particularly companies with strong fundamentals and have been hit hard recently,” he said.

The market leader on Tuesday was Zip Co which rallied 15.1 per cent to $1.22, ahead of a 7.9 per cent jump in A2 Milk to $4.90. A2 Milk closed the session in a trading halt amid reports that it could be approved to sell baby formula in the US.

Consumer discretionary and staples sectors were the top performers as ANZ-Roy Morgan’s consumer confidence index rose 2.1 per cent in the past week. Shares in JB Hi-Fi climbed 3.1 per cent to $43.61 and Coles Group added 1.9 per cent to $19.21.

It was a sea of red in the real estate space with Centuria Office REIT down 8.4 per cent to $1.70 as it expects earnings and distributions to fall in the year ahead due to rising debt.