RBA expects to raise interest rates again, ASX falls

Australian equities have started the day lower on signals from global stock markets after Friday’s US employment report indicated that the Federal Reserve is likely to continue aggressive monetary policy to curb inflation.

The RBA is expected to raise interest rates tomorrow, with the economist forecasting yields to rise between 25 and 50 basis points.

According to RateCity, if the RBA raises the cash interest rate by 0.25 percentage point, the average owner-occupier with $500,000 in debt and 25 years left will see their repayments rise another $66.

Technical assumptions in the RBA’s board minutes assume that the cash rate could rise to 1.75 percent by the end of the year and reach 2.5 percent by the end of 2023.

If this happens, the same borrower with a $500,000 loan could see their monthly repayments increase by a total of $652 a month by Christmas next year.

“The board of directors may stick to a standard 0.25 percentage point increase, but chances are it will be tougher,” said RateCity research director Sally Tindall.

“With gasoline and grocery prices continuing to rise, there are strong arguments for a 0.40 percentage point increase.

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The ASX 200 fell 20 points, or 0.3 percent, to 7,212 at 10:09 AM AEST.

At the same time, the Australian dollar rose to 72.10 cents.

Among the worst players at the opening were Zip (-4.4 sts), Magellan (-4.1 sts) and Block (-4 sts).

However, Whitehaven gained 1.9 percent, Beach Energy rose 1.5 percent and Woodside rose 1.6 percent.

US jobs report exceeds expectations

Global stock markets fell Friday.

Data showed that the US economy generated more jobs than expected in May, suggesting that the Federal Reserve is likely to continue raising interest rates in its bid to curb inflation.

The U.S. Department of Labor’s closely monitored employment report shows that the U.S. economy added 390,000 jobs in May, with the unemployment rate stable for the third straight month at 3.6 percent, better than most analysts’ estimates.

Traders hoped the jobs report would reveal stronger signs of weakness in the US economy that would help the Fed ease its stance on inflation and interest rates to avoid a recession.

“It was strength across the board, excluding retail, and the jobs economy continues to grow,” said Josh Wein, portfolio manager at Hennessy Funds in Chapel Hill, North Carolina.

“Unfortunately, the Fed still has a little bit of demand to destroy and they will continue to do so for at least the next few meetings with 50-point rate hikes.”

The MSCI World Stock Index, which tracks stocks in 50 countries, fell 1.11 percent.

The pan-European STOXX 600 index also fell 0.26 percent.

On Wall Street, all three major indices led lower on sell-offs in technology, consumer discretionary, communications services, financials and industrials.

The Dow Jones Industrial Average fell 0.98 percent to 32,923.57, the S&P 500 lost 1.57 percent to 4,111.41 and the Nasdaq Composite fell 2.46 percent to 12,013.45.

“Part of the recent rally (in equities) was due to the Fed recognizing that they could reassess in the fall and maybe take a break,” Wein said.

“But the market is going back on some of their previous losses and saying that basically all of that is off the table.”

Oil prices rose, bolstered by expectations that OPEC’s decision to raise production targets by slightly more than planned will not have much of an impact on tight global supply and on rising demand as China eases pandemic-related COVID-19 restrictions .

Brent oil rose, trading at 10:07 AM AEST at $121.41 a barrel.

ABC/Reuters