ASX 200 bleeds as RBA’s decision to raise interest rates lowers investor sentiment

Highlights

• ASX 200 closed 53% lower at 7,095.70 points today.
• All 11 sectors ended lower, contributing to losses in the overall market.
• Investor sentiment seemed dented by RBA's decision to raise interest rates by 50bps to combat inflation.

A myriad of factors are impacting global share markets. Inflation and recession fears have led to greater market uncertainty with the Russia-Ukraine crisis continuing. Amidst this, there are speculations that the Federal Reserve will likely announce a further rise in interest rates to calm down inflation. Volatility in the commodity and oil prices continues to impact share market performance across all geographies. Adding on to market pressures are sanctions imposed by US allies on import of Russian oil. The recent hike in crude prices by Saudi Arabia has further fueled concerns over energy demand and supply.

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RBA raises interest rates by 50bps

Back home in Australia today, the Reserve Bank of Australia (RBA) announced its decision to increase the cash rate target by 50 basis points (bps) to 85bps. The Board also increased the interest rate on Exchange Settlement balances by 50bps to 75bps. The Australian central bank opines that in addition to external factors, domestic factors have also contributed to inflation, with capacity constraints in some sectors and the tight labour market contributing to the upward pressure on prices.

As per the RBA meet held today, inflation is anticipated to increase further but then decline towards the 2–3% range next year. Meanwhile, the Australian economy seems resilient, growing by 0.8% in the March quarter and 3.3% over the year.

In the US, Fed officials recently signaled a hike in interest rates by half a percentage point in next week’s policy meeting and again in July. Now, the question before investors and consumers is not whether inflation has reached its threshold but when will it retreat to a neutral rate and how much interest rate hike is still to be announced by the central banks to get there.

On this note, let us move to the market performance today.

How did ASX 200 perform?

In the initial few minutes of trade, the benchmark index ASX 200 opened 0.58% lower despite positive overnight trading on Wall Street.

At noon, the ASX 200 fell 0.710% to 7155.100 points. 10 of 11 sectors were seen trading in the red zone. The materials sector was the only sector which traded in green as miners benefitted from the rise in iron-ore prices. The S&P/ASX 200 Materials (Sector) XMJ was up 0.081% at 18112.900 points at 10:45 AM AEST. 

Eventually, crossing below its 20-day moving average at market close, the ASX 200 dropped 110.60 points or 1.53% to 7,095.70 points. The materials sector, which was up earlier, settled 0.28% lower at 18047.400 points. With this, all eleven sectors ended in the red zone today.

Who gained, who lost?

Coming to the top ASX 200 gainers, Sandfire Resources NL (ASX:SFR), and Inghams Group (ASX:ING) led the pack with 3.356% and 3.202% gains, respectively. Other gainers of the day were Ampol Limited (ASX:ALD), Viva Energy Group Limited (ASX:VEA), and Magellan Financial Group Limited (ASX:MFG).

On the flip side, ZIP Co Limited (ASX:ZIP), Clinuvel Pharmaceuticals Ltd. (ASX:CUV), and Ingenia Communities Group (ASX:INA) were the top losers, down 14.380%, 6.713%, and 5.665%, respectively.

Asian & global market

Asia's stock markets traded lower today. The yen reached a 20-year low, and bond markets wobbled as investors cautiously await US inflation data and central bank meetings in major economies. Japan’s Nikkei was marginally higher, while the Topix index climbed 0.49%.

Yesterday, European shares rose, buoyed by banks and commodity-related stocks. The pan-European STOXX 600 index was up 0.9% after witnessing a loss of approximately 1% last week.

Overnight, US stocks ended on a positive note. All three US indices closed in the green as data and comments on the jobs market and inflation impacted investor sentiment. The S&P 500 climbed 0.31% to 4121.43, while the tech-heavy Nasdaq Composite Index advanced 0.40% to 12061.37 points. The Dow Jones Industrial Average was up almost 0.049% at 32,915.78 points. 

In what can be seen as a positive development, investors are somewhat lifted by news of easing Covid-19 restrictions in the world's second-largest economy, China. The Biden government is also mulling lifting some tariffs in China to tackle the current high inflation.