ASX 200 settles higher at 7,782, positive economic data pares likelihood of RBA rate cuts
- ASX 200 trades in a range after positive employment data on Thursday.
- Australia's private sector activity marked its second consecutive month of expansion in March.
- The S&P 500 reached 5,200 after the Fed maintained rates at 5.5%.
The ASX 200 Index moved back and forth in a range, and closed higher at 7,782 on Thursday. The index faced pressure due to the positive Employment data from Australia. The seasonally adjusted Employment Change for February surged to 116.5K, surpassing expectations of 40.0K and the previous figure of 15.3K. Additionally, the Unemployment Rate increased by 3.7%, lower than the anticipated 4.0% and the previous 4.1%. These positive figures contribute to the Reserve Bank of Australia’s (RBA) hawkish stance. The RBA has chosen to maintain interest rates at a 12-year high of 4.35% on Tuesday, consistent with its stance for the third consecutive meeting.
ASX 200 Index surged by nearly 1.0% to surpass 7,770 in the early hours, tracking a rally on Wall Street overnight. This surge followed the US Federal Reserve's (Fed) reaffirmation of expectations for three interest rate cuts this year. The S&P 500 reached 5,200 after the Fed maintained rates at 5.5%. Base metals, including copper and palladium, also participated in the rally overnight.
The Australian equity market mirrored a retreat in financial stocks, with notable declines observed across major players. Commonwealth Bank slid to 116.60, marking a decrease of 0.42%, while National Australia Bank dropped to 34.50, down by 0.54%, and Westpac Banking slipped to 26.40, down by 0.75%. Conversely, Telix Pharmaceuticals, Ramelius Resources, and Webjet emerged as top gainers, whereas Brickworks and Strike Energy were among the top losers.
Australia's private sector activity showed resilience in March, marking its second consecutive month of expansion. The preliminary Judo Bank Services PMI climbed to 53.5 from the previous 53.1, while the Composite PMI increased to 52.4 from 52.1. However, Manufacturing PMI experienced a decline, dropping to 46.8 from the previous 47.8.
The US Justice Department is preparing to file a lawsuit against Apple, potentially as early as Thursday. The suit alleges that the tech giant violated antitrust laws by impeding rivals' access to the iPhone's hardware and software features. This legal action is part of the Biden administration's broader efforts to address antitrust concerns within the tech industry, further escalating its confrontations with major US technology corporations.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Author
Akhtar Faruqui
FXStreet
Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.
