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Australia’s latest CPI inflation came in fairly hot on Wednesday, with inflation growth in the twelve months since last August clocking 4%.
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However, the AX200 has rallied hard following that data, because CPI came in under expectations. That said, expectations were for inflation to hit 4.1% – just one pip less than what the actual figure reflected.
Clearly, the market has been hungry for a good news story, and it doesn’t need to be particularly good news, even though it was technically a beat.
The XJO surged essentially +1% as of 12.245pm AEST, little over an hour after the ABS dropped its latest CPI data.
(Full disclosure: this finance journalist, who is exposed to leveraged index ETFs, isn’t necessarily complaining.)
All in all, the major benchmark is on its way back to 8,800pts after a fresh period of doldrums borne on the back of oil prices climbing well over US$100/bbl, and, the US 10Y bond yield hitting 5.2% at one point.
On the back of the US-Iran war, bond yields globally are climbing as national economies are put under pressure (remember yields rise when government bonds are sold off,) and Central Banks around the world have all been raising rates.
Yesterday’s RBA rate raise follows recent interest rate hikes in the EU and US. Notably, the market didn’t react to yesterday’s RBA rate hike, suggesting it was priced in.
I’ve said it once in this article and I’ll say it again: clearly, the ASX is hungry for good news. But as ongoing conflict in the Middle East doesn’t show any obvious sign of winding down, it’s unclear for how long Wednesday’s good news day can last.
The good news is that Brent Crude prices are currently under US$100/bbl at US$96/bbl after easing overnight.
Not long ago, that would have been considered very expensive in its own right; but in the context of the last few weeks’ volatility, it’s a happy number.
The other good news on the rate hike front is many in the market now expect a second hike down under to be put off a little bit.
That’s evident in analyst coverage from the likes of VanEck, now calling a December hike; as well as the fact the Aussie dropped this afternoon further below 70 US cents.
The bad news is we will remain married to the whims of Wall Street’s major benchmarks, and of course, remain heavily exposed to geopolitical macro from a war Australia ultimately didn’t ask for – nor the rest of the world.
And if COVID taught us anything, it’s that inflation is easy to create and very hard to eliminate. But as for Wednesday’s intraday session, Aussie traders are loving the news from the ABS today.
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The material provided in this article is for information only and should not be treated as investment advice. Viewers are encouraged to conduct their own research and consult with a certified financial advisor before making any investment decisions. For full disclaimer information, please click here.
