The Australian share market is down on Wednesday, as analysts from most of Australia’s major banks predict an interest rate hike far sooner than expected.
- Most sectors of the local share market finished in the red
- CBA has predicted a cash rate rise as soon as late 2022
- Bitcoin sank to US$28,000 overnight but has recovered to US$32,000
At 12:30pm AEST, the ASX 200 was down 0.4 per cent.
The benchmark closed 1.5 per cent higher yesterday after heavy losses last week.
The losses on Wednesday were a mixed bag of stocks.
Energy network provider AusNet was down 1.7 per cent as it continued to grapple with outages on the edge of Melbourne and with reports it underpaid workers.
Meanwhile, Beach Energy was down (1.3pc) as the price of oil dipped, while travel stock Corporate Travel Management was down 1.1 per cent and Charter Hall lost 1.4 per cent.
On the flip side, mining stocks were up, as the iron ore price rose after losses yesterday.
ABS data from today showed Australia had a record $39.2 billion in exports last month, largely pushed along by iron ore shipments, as well as meat and coal exports.
Champion Iron rose 3.3 per cent.
Tech stock Afterpay was also up 3.7 per cent, while Collins Food also made a gain of 3.3 per cent.
Major banks predict rate rise next year
The benchmark is faltering as analysts from major banks predict that the nation’s historically low cash rate will be raised far sooner than the Reserve Bank’s current timeline.
While it has been sticking to its deadline of 2024, Commonwealth Bank economist Gareth Aird now believes a hike is on the cards by late 2022.
“For the past six months, CBA’s economic forecasts for the Australian economy have been at odds with the RBA’s ‘2024 at the earliest’ forward guidance on the cash rate,” he said.
“But we have refrained from calling a hike in the cash rate until now because we believed that markets were more focused on the RBA’s policy decisions around yield curve control (YCC) and the bond buying program.”
He estimated the cash rate could go from 0.1 per cent to 0.5 per cent by end of 2022, and then peak at 1.25 per cent by mid-to-late 2023.
There are also ongoing rumblings that very low interest rates in the US could also be raised sooner than expected, as inflation rises there.
ASX dips despite Wall Street gains
The Nasdaq finished 0.8 per cent higher overnight, helped along to a record high by blue-chip names Microsoft and Facebook. The S&P 500 and Dow Jones also ended in the green.
But the focus on Wall Street was once again on the US Federal Reserve, with another round of comments from chair Jerome Powell.
Fears interest rates could begin rising as soon as next year in the US in response to rising inflation drove stocks lower at the end of last week.
In his address to the US House of Representatives, Mr Powell noted again that he expected the recent surge in inflation to be temporary.
“As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal,” he said.
US Treasury yields (interest) were broadly lower overnight, suggesting that investors were soothed by Mr Powell’s comments.
“Powell once again acknowledged the risk that reopening frictions on inflation ‘have been larger’ and ‘may turn out to be more persistent’ than expected,” CBA analysts noted.
“However, Powell said he had ‘a level of confidence’ that the lift in inflation will prove transitory and that 5 per cent year-on-year inflation would be unacceptable.”
The bank believes because underlying inflation has been more modest, that the Fed will largely stick to its guns.
“Indeed, trimmed inflation suggests underlying inflation in all economies we cover, with the exception of Canada, remains subdued,” CBA said.
The US dollar dropped, which in turn pushed the Australian currency slightly higher to 75.60 US cents.
Iron ore is also up 3 per cent to $212.70.
That was after it took a hit yesterday, on news that China was going to start investigating Australia’s most lucrative export.
Bitcoin dips beneath $US30,000
The controversial cryptocurrency briefly dropped beneath $US30,000 overnight for the first time since early this year.
At one point, it even dipped to $US28,600, a five-month low.
Bitcoin dropped as China continued to make moves to crack down on the unregulated currency.
The latest rumblings from the superpower is that China’s south-west Sichuan province has ordered cryptocurrency mining projects to close down.
Other cryptocurrencies were dragged down with Bitcoin, including the also popular Ether.
It is now back above $US32,000.
Senior market analyst Edward Moya said Bitcoin is in the “danger zone” where a drop beneath US$30,000 could soon see it plunge further to $US25,000.
“The bull case for Bitcoin is falling apart and some longer-term investors might worry that the $20,000 level might not be defended as short-term fundamentals continue to deteriorate,” he said.
“Bitcoin and Ethereum are down over 50 per cent, while Dogecoin has lost over 70 per cent of its value since peaking in May.”