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Australian shares have risen on Monday, led by financial stocks, ahead of a highly anticipated modest interest rate hike by the Reserve Bank of Australia (RBA) on Tuesday, despite the highest inflation rate recorded in three decades.
Key points:
- The RBA is likely to raise the interest rate to 2.85 per cent
- On Friday, all three major Wall Street indices advanced
- The pan-European STOXX 600 index closed up 0.1 per cent
The RBA is tipped to raise interest rates by a more modest 0.25 of a percentage point for a second straight month on Tuesday and is set to do so again in December, despite the highest inflation rate recorded in three decades, a Reuters poll has found.
This puts the RBA — which kicked off its relatively late-starting rate-hiking campaign with four straight 50-basis-point moves — out of step with its global peers, which are mostly still lifting rates in larger increments.
Policymakers surprised economists and markets earlier this month with the smaller, 25-basis-point hike, saying rates had already risen substantially.
However, with inflation racing to 7.3 per cent during the past quarter, the RBA is under considerable pressure to reconsider.
"A full, 50-basis-point move will signal panic and that's something no central bank wants in the current climate," economist and co-founder at Wealthi Peter Esho said in a note.
"We think the RBA will continue to echo its peers at the ECB and Bank of Canada, in that rate rises are necessary but not at the expense of financial stability.
"We think the RBA will move by 25 basis points but will make it clear that more rises are coming, in calculated steps.
"We'll probably see three or four more 25-bpts moves, perhaps lasting a little longer than previously expected."
ASX rises on tech, financials boost
On Australia's share market, the ASX 200 closed up 78 points, or 1.2 per cent, to 6,863.
By 4:19pm AEDT, the Australian dollar was flat against the greenback, buying at 64.17 US cents.
Almost all sectors were in the green, except for the energy sector.
Tech stocks added 2.6 per cent, with Hub24 and Xero gaining 4.3 and 4.6 per respectively.
Among the best performers were Graingorp (+7.9 per cent), ARB Group (+7.5 per cent) and Home Consortium (+7.9 per cent).
Financials jumped as much as 1.3 per cent, with the big four banks up between 0.5 per cent and 1.4 per cent.
Bucking the positive mood, energy, mining and gold stocks traded in the red after a slump in commodity prices.
Whitehaven Coal (-4.1 per cent), Regis Resources (-1.6 per cent) and BHP (-0.3 per cent) were down as commodity prices took a hit from demand concerns and a stronger US dollar.
Among individual stocks, Nitro Software rose more than 20 per cent as the company said it intended to recommend the nearly-$500-million takeover offer by Canada's Alludo after it rejected a $1.80-per-share bid from Potentia Capital Management.
Coronado Global Resources reversed early gains and finished the session flat after it reported annual group revenue more than doubling to $US2.85 billion (year to date).
EML Payments plunged more than 35 per cent after the company agreed to temporarily cease onboarding new customers, agents and distributors in relation to its UK subsidiary, which could hurt revenue in FY23.
Buoyant Wall Street boosts global equalities
World and European shares turned higher on Friday as Wall Street extended gains amid hopes of a slowdown in some central banks' rate hikes.
MSCI's main world index, which tracks 47 countries, rose 1.5 per cent on Friday.
It was up for a second straight weekly gain as investors navigated a mixed bag of earnings and economic data.
In the US, the Dow Jones Industrial Average rose 828 points, or 2.6 per cent, to 32,862, the S&P 500 gained 94 points, or 2.5 per cent, to 3,901, and the Nasdaq Composite added 310 points, or 2.9 per cent, to 11,102.
"This stock market clearly wants to go higher and is growing confident that next week's Fed-driven fireworks will include the beginning of a deliberation to tighten at a slower pace," said Edward Moya, who is a senior market analyst at OANDA in New York.
US consumer spending increased more than expected in September, while underlying inflation pressures continued to bubble, keeping the Federal Reserve on track to hike interest rates by 75 basis points for the fourth time this year.
"Wall Street is shrugging off both another hot inflation report and strong consumer spending data that should support the case for the Fed to remain aggressive with rate hikes until the New Year," Mr Moya said.
Europe's STOXX index recouped losses of more than 1 per cent, to close at a five-week high.
Earlier, Thursday's weak forecasts from Amazon sent Europe's tech sector down and the prospect of renewed COVID-19 curbs in China hit mining and oil firms.
By 4:46pm AEDT, Brent crude futures had declined and were trading at $US95.02 a barrel.
In bond markets, borrowing costs jumped as stronger-than-expected inflation data from France, Germany and Italy put rising prices back in focus.
Still, what analysts had described as a dovish European Central Bank (ECB) meeting on Thursday meant Germany's 10-year Bund yields were set for a weekly decline.
US treasury yields rose and some investors took the recent data as an indication the Fed would continue its more-aggressive path.
ABC/Reuters