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Australian shares have risen in afternoon trade, led by financial stocks, ahead of a highly anticipated modest interest rate hike by the Reserve Bank tomorrow despite the highest inflation 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 quarter of a percentage point for a second straight month on Tuesday and is set to do so again in December despite the highest inflation in three decades, a Reuters poll 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 raising 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.
But with inflation racing to 7.3 per cent last quarter, the RBA is under considerable pressure to reconsider.
"A full 50-bpts (basis points) move will signal panic and that's something no central bank wants in the current climate," Peter Esho, economist and co-founder at Wealthi, 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-bpts 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 financials boost
The ASX 200 jumped more than 1 per cent at open. It was up 46 points or 0.7 per cent to 6,831 at 12:50pm AEDT.
At the same time, the Australian dollar was up against the greenback, buying at 64.18 US cents.
Most sectors were in the green. Energy and mining sectors were on the way down.
Financials jumped as much as 0.9 per cent with "Big Four" banks up between 0.3 per cent and 0.9 per cent.
Tech stocks added 2.8 per cent, with Hub24 and Xero gaining 4.4 per cent each.
Among the best performers were Graingorp (+7.7pc), ARB Group (+6.4pc) and Netwealth Group (+5.5pc).
Among individual stocks Nitro Software rose 17.9 per cent as the company said it intends 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 rose 2.2 per cent after it reported annual group revenue more than doubling to $US2.85 billion year-to-date.
Bucking the positive mood, energy, mining and gold stocks traded in the red following a slump in commodity prices.
Whitehaven Coal (-4.3pc), Regis Resources (-2.6pc) and BHP (-1pc) were lower as commodity prices took a hit from demand concerns and a stronger US dollar.
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.
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, 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 curbs in China hit mining and oil firms.
By 1:19 am AEDT, Brent crude futures declined 1 per cent trading at $US94.79 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 will continue its more aggressive path.
ABC/Reuters