RBA interest rate hike to push economy close to ‘unchartered territory’
The Australian share market has closed lower for the week. Despite a recent spike in the oil price as tensions flared in the Strait of Hormuz, the market remains bullish with Wall Street consistently pushing record highs. Wilson Asset Management’s Anna Milne said, “the reason for that is that the economy and the market are two very different beings… And at the moment, there’s ample liquidity in the market and what this means is that we are quite sheltered, I would say, from any significant market shocks.” By the close of trade, the ASX 200 gained 64 points or 0.7 per cent on Friday to take the weekly decline to 0.6 per cent. The index closed at 8,729. The next big local macroeconomic event is the Reserve Bank (RBA) decision. The market’s currently pricing in a 75 per cent chance the RBA will raise the cash rate to 4.35 per cent. “This (at 4.35 per cent) is where we sat through the duration of 2024 and the peak that we got to in the last five years. So anything above this, we think is unchartered territory.” But Anna Milne believes any hike “beyond that is going to be a policy error … so if they go beyond next week … which is what the market is pricing, the market’s pricing three more hikes, including the one next week, we think they’ll have to reverse this down the track because the economy will soften too dramatically.” Wall Street also saw big tech earnings this week. Wilson Asset Management thinks the so-called lofty market valuations are starting to look more like fair value now. “We’ve had the likes of Microsoft, Meta, Amazon, and Alphabet reporting, and they all actually exceeded expectations when it came to cloud revenues, and they all increased their CapEx expectations for AI infrastructure … I think across the four companies, they’re now expecting to spend $650 billion this year on AI infrastructure. So that can be perceived as bullish in some respects.” Anna Milne said.
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