Hot growth triggers rate fears; ASX tumbles; oil prices surge

Hot growth triggers rate fears; ASX tumbles; oil prices surge

News in brief

The local share market yesterday experienced its worst sell off since April with the benchmark S&P/ASX200 closing down nearly two per cent to 8901 points.

 

Global oil prices surged yesterday, and brent is now fetching around $83 a barrel. It is up 25 per cent since the US started moving its fleet to the Middle East, and market watchers warn that it could go much higher. That will hurt people at the petrol bowser.

 

Australia’s largest superannuation funds have signed a memorandum of understanding with Canadian funds to increase investment between the two countries.

 

Fighting in the Middle East continues to escalate, with Israeli and US missiles hitting Tehran yesterday, while Iran fired at targets across the Middle East in retaliation for the attacks over the weekend.

 

US biotech Ensysce Biosciences says it has published its first peer-reviewed clinical paper on an oral “overdose protection” approach for opioid medicines, using what it calls MPAR technology. It is part of the growing field of anti-overdose medicines.

Fear-o-meter

The Reserve Bank is likely to lift interest rates in May, given the pace of both inflation and economic growth. Only a significant slowdown in price rises, or full-scale war in the Middle East, will stop a rate hike.

 

Household spending growth in the December quarter fell to 0.3pc, from one per cent in the June quarter. Households account for half of the total GDP, so the slowdown was significant.

 

But the number was messy with electricity rebates and legal tobacco sales detracting from the final figure. Overall discretionary spending was high. Consumers are in pretty good shape, happy to spend money late last year on AC/DC, Metallica and Oasis concerts and the Ashes cricket series.

 

The other big driver in the economy is public spending. The public sector accounts for nearly 28 per cent of the economy – a record high. So whatever Treasurer Jim Chalmers says, you can be assured that government spending is adding to interest rate pressures.

 

If the central bank board lifted rates on March 17, it wouldn’t be a shock. A more likely scenario is that March quarter inflation data, due out in late April, shows prices still rising too fast, and we see a rate hike on 5 May. That is one week before the federal government is due to hand down its budget.

Fear & Greed Q+A today

On yesterday's GDP figures, the impact of the Middle East conflict, and what it means for the RBA:

 

"We do expect them to lift the cash rate in May. There’s a lot of debate about March at the moment, but just given the offshore uncertainty around the duration and severity of the conflict I think they’ll err on the side of caution and lift the cash rate again in May.

 

From there I think the risks are still to the upside, just based on the fact that we need growth to slow in Australia."

The Australian economy ended last year growing at its fastest pace since 2022, boosted by government spending, data centre investments and a Black Friday shopping spree by consumers. The annual rate of growth jumped to 2.6 per cent last calendar year, according to the ABS. For the quarter, the economy expanded at a 0.8 per cent clip. It was faster than economists expected, spread across both the public and private sectors, and adds weight to arguments that the Reserve Bank will lift interest rates in less than a fortnight. As always with economics, there were caveats. Private business investment remains a bit lacklustre while consumer spending is also tapering.

Greed-o-meter

	Company	Share price %
1	Commonwealth Bank	-1.19
2	BHP	-3.50
3	National Australia Bank	-2.02
4	Westpac	-1.60
5	ANZ	-3.71
6	Wesfarmers	-1.52
7	Macquarie Group	-2.51
8	CSL	-1.64
9	Rio Tinto	-1.62
10	Fortescue	-2.96

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There was no avoiding the sell-off on the ASX yesterday. All 11 sub-indices were in the red, and the ten biggest companies all fell.

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Source: MarketIndex