ASX flat as rate cut bets for 2024 are all but gone — as it happened (2024)

• ASX 200: Flat at 7,683 points
• Australian dollar: +0.4% at 65.12 US cents
  
• S&P 500: +1.2% to 5,070 points
• Nasdaq: +1.6% to 15,696 points
• FTSE 100: +0.3% to 8,044 points
• EuroStoxx 50: +1.4% to 5,008 points
• Spot gold: +0.2% to $US2,326/ounce
• Brent crude: +0.2% to $US88.60/barrel
• Iron ore: +1.1% to $US110.95/tonne
• Bitcoin: +0.4% to $US66,621

Prices current around 4:30pm AEDT.

Live updates on the major ASX indices:

The Australian sharemarket has closed flat as hotter-than-expected inflation figures for the March quarter disappoint investors.

The ASX 200 finished session unchanged at 7,683.

The education sector gained 2.7% while the mining sector lost 0.3%.

The Australian sharemarket will close tomorrow for Anzac Day holiday.

Here are the top and bottom movers of the day.

The federal budget in May is expected to announce support measures to address the ongoing cost-of-living crisis in Australia.

The Reserve Bank and economists will watch closely whether those support measures can add inflationary pressures.

"The budget next month will focus on easing cost-of-living pressures, not adding to them,"Treasurer Jim Chalmers said in a press release on Wednesday.

"[Inflation] is still too high, people are still under the pump, but we’re making progress."

Today’s figures show the Consumer Price Index moderated to 3.6 percent in the year to the March quarter, down from 4.1percent in the previous quarter, but it came in hotter than expected.

Mr Chalmers referred to an ABS analysis, saying "the government’s cost-of-living policies are directly taking pressure off inflation".

"Our policies took ½ of a percentage point off inflation in the year to the March quarter 2024," he said.

"In the year to the March quarter 2024, electricity prices rose 2.0 per cent, and would have risen 14.9 per cent without our energy plan.

"In the year to the March quarter 2024, rents rose 7.8 per cent, and would have risen 9.5 per cent without the largest increase to rent assistance in 30 years.

"In the year to the March quarter 2024, childcare prices fell 5.6 per cent, and would have risen 15 per cent without our policy."

Annual inflation is now less than half its peak of 7.8%.

In the May budget, the federal government says it will seek to balance the ongoing fight against inflation with the need to gear our economy for growth.

"The centrepiece of the cost-of-living help in the budget will be a tax cut for every taxpayer," Mr Chalmers said.

"We will consider additional help on top of that if it’s affordable, if it’s responsible and if it helps takes some of the edge off inflation in our economy.

"Another important way we are taking pressure off inflation is by aiming to deliver a second surplus this year.

"This responsible fiscal management allows us to pay down debt and make room for other priorities in the budget like laying the foundations for growth through a Future Made in Australia."

Commonwealth Bank's economics team has pointed out something interesting about the March quarter inflation data.

It says the "key drivers" of inflationary pressures in Australia in Q1 were centred around parts of the CPI basket where consumer demand is less able to respond to higher prices.

Eight of the top 10 contributors to the quarterly increase in prices were non‑discretionary items:

• Rents
• Secondary education
• Health services
• Pharmaceuticals
• New dwelling construction costs
• Vegetables
• Insurance
• Other financial services
  

The two discretionary items rounding the top 10 were:

• Tertiary education
• Domestic travel
  

"However, that does not change the fact that inflation slowed by less than expected in Q1 24," said CBA economist Stephen Wu.

"Some components of the CPI basket are proving stickier than anticipated. A slower return of inflation to target has implications for the RBA’s policy decisions.

"The RBA’s next interest rate decision is on 7 May, where we expect no change in the cash rate.

"A full forecast refresh will occur with the release of the Statement on Monetary Policy, updated to include today’s inflation data.

"We will release our preview of the May RBA Board meeting next week," he said.

Paul Bloxham, the chief economist at HSBC, says today's inflation data vindicates the Reserve Bank's choice in February and mid-March to remind people that it was keeping its options open, on the question of interest rate hikes or cuts.

"Combined with the recent job figures which showed a more-slowly rising unemployment rate than the RBA had forecast, today's figures open the door for the RBA to consider lifting its cash rate further," Mr Bloxham said.

"However, unlike in November 2023, when the upside surprise to core inflation was 0.4 percentage points on the September quarter 2023 trimmed mean print, which compelled them to hike, the case today is not as strong.

"We expect the RBA will choose to hold steady in May.

"What happens beyond that horizon will depend heavily on global events, particularly including actions by the US Federal Reserve, and whether the current 'green shoots' in the global industrial cycle become a more sustained recovery.

"For fiscal policymakers, today's inflation print should reinforce that high inflation remains the key challenge and that both the monetary and fiscal policy tools should be used to deal with this challenge.

"Our central case has the RBA on hold through 2024, with cuts beginning in Q1 2025, but today's figures add to our view that there is a non-zero risk that the next move is up," he said.

The swimwear and midmarket boho chic fashion brand, first started byJodhi Meares, collapsed last month.

It had a meeting for creditors scheduled for 11:30am AEST today, where according to an ASIC notice, they were to vote on whether to try to save the company or wind up it.

I've been reaching out to the fashion retailer's administrators but we still have no word.

Tigerlily's owner, pivate equity firm Crescent Capital, last year appointed Deloitte to help sell the business. Tigerlily was also put into admin 3 years ago.

Do you know anything about Tigerlily's fate or that of other struggling fashion brands ? Send me an email on terzon.emilia@abc.net.au

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Woodside Energy shareholders have voted to re-elect the company's chair Richard Goyder, a tally of proxy and direct shareholder votes showed on Wednesday.

There were calls for shareholders to vote against Richard Goyder's re-election ahead of the annual general meeting by a proxy advisor and several investors.

Harriet Kater from the Australasian Centre for Corporate Responsibility told The Business on Monday that many shareholders were growing increasingly frustrated by what they believe are Woodside Energy's climate governance and strategy failings.

Mr Goyder said it was unlikely the company's climate transition action plan would be supported by a majority of shareholders at a vote to be held at its annual general meeting.

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Hi Vicki,

Dr Brendan Rynne, KPMG's chief economist, has circulated a note on the CPI figures with some passages that go directly to your question.

He seems to be a little more optimistic than other economists, because he says the data seems to indicate that this inflation surge "may be nearing its end."

But these lines will be of interest to you.

"The largest driver of inflation this quarter were from two categories which always have a price surge in the March quarter – education and health.

"Following the March quarter these 2 categories then don’t tend to add any more to inflation for the next 3 quarters – so in effect they’re now out of the inflation equation until March 2025.

"Education was a little higher than expected – following catch-up wages growth in the public sector, which then acted as floor for wages growth in the private sector.

"Health was a little lower than anticipated – most likely due to spare capacity in the system that was built up during COVID and is now helping moderate price growth, with the current level of demand lower than during the pandemic.

"The rest of the categories show an economy where prices are still growing but at a lower rate than recently, as a consequence of weakening aggregate demand. Importantly the annual trimmed mean inflation measure has also continued to fall, down 0.2% to 4.0% - still outside the target band but considerably lower than its peak."

Hi James.

We keep reporting on rate cuts because that is what most economists and the financial markets expect — although, as we have reported, those bets have been pushed out considerably over the first few months of this year.

The current cash rate is 4.35%. Fairly recent RBA estimates put the "real" neutral cash rate as being somewhere close to 1%, with a range of -0.5 to 2%.

Now, that's a real rate — one minus inflation.

It is true that if you add in the current inflation rate of 3.6%, then that puts the neutral "nominal" cash rate at 4.6%, about one rate rise above where it is currently.

However, inflation has been falling quite rapidly.

It has more than halved in just over a year, from a peak of 7.8% in the December quarter of 2022 to today's reading of 3.6%.

And if you thought that restrictive real interest rates were necessary to tame inflation when it was at its peak, then we would have needed a peak cash rate above 8.8%, or roughly double what it is now.

That clearly wasn't the case, inflation started coming down from that peak at a time when the cash rate was only 3.1%.

How many economists, including most of those at the Reserve Bank, view a restrictive level of rates is as a longer-term concept, relative to the mid-point of the inflation target.

That mid-point is 2.5%, so a reasonable estimate for the long-term neutral cash rate is somewhere around 3.5%.

On that basis, at the moment, interest rates in Australia are mildly restrictive, which is what most market economists and the RBA itself say.

"We think monetary policy is slightly restrictive," Michele Bullock said at the press conference following last month's decision to keep interest rates on hold.

Given that unemployment is edging higher and economic growth is very weak, and only positive because of big net migration, it's pretty hard to disagree with that assessment.

This info relates to some of my other posts.

David Bassanese, the chief economist of BetaShares, has circulated a note on today's inflation data.

He says the March quarter CPI was a touch disappointing, with both the headline and trimmed measure of inflation being a little higher than expected.

But...

"One saving grace is that much of the pricing pressure reflected the usual start of the year price hikes in a range of "non-market" services such as health, education, and child care," he says.

And..

"It is stubborn strength in rents and insurance costs (included in financial services) that are most at fault in keeping inflation above pre-COVID levels - over which interest rates have little direct control."

However, he says the RBA would still be concerned to see stubborn pricing pressure across a range of other market services, "which could reflect the flow-on effect of strength in non-wage costs, but also recent gains in wages especially with the leisure/hospitality sectors."

So, as things stand, he thinks it's likely that the RBA will have to upgrade its inflation forecasts in the upcoming May Statement on Monetary Policy, and a rate rise can no longer be "safely ruled out."

"To achieve its 3.6% June quarter forecast for annual trimmed mean inflation, the next quarterly gain would need to be 0.6% - well down on the 1% in the March quarter. This seems a stretch. Annual trimmed mean inflation is likely going to be close to 3.8%," he said.

"Along with strength in the labour market, and signs of lingering pricing pressure in the United States, local interest rates are likely to remain firmly on hold for the foreseeable future.

"Indeed, another interest rate rise can no longer be safely ruled out. I still anticipate at least one rate cut this year, but now much closer to Xmas than mid-year," he said.

Hi Brenden,

The CPI index is designed to track the movement of prices that households have to pay for the goods and services they purchase from other sectors of the economy (the business sector or government sector).

That's why it's called consumer price inflation - it zeroes in on the prices consumers are paying for things.

Insurance falls into that category.

And the RBA makes a distinction between all kinds of prices.

For example, it's conscious of the fact that "services inflation" is not falling at the same rate as "goods inflation" at the moment, and that more of the inflation in Australia appears to be coming from domestic sources these days, as opposed to the start of this inflationary episode when most of the inflation was coming from overseas.

The RBA is also conscious of the range of consumer prices in the economy that increase regularly to match CPI. For example, even the tolls we pay on privatised toll roads increase regularly to match CPI, which adds to inflationary pressures.

And there are a whole range of prices that increase due to external factors which the RBA has no control over - think of the price of oil.

The RBA considers all of those things.

Inflation slowed less than expected in the first quarter as service cost pressures stayed stubbornly high, a disappointing result for policymakers that led markets to abandon hopes for any rate cuts this year.

Spooked markets even moved to price in a minimal chance - about 4% - of a rate hike by August, while pricing out almost any bet of a rate cut this year.

Total easing expected this year has been slashed to 3 basis points, down from 17 bps before.

Data from the ABS showed the consumer price index (CPI) rose 1% in the first quarter, above market forecasts of 0.8%.

The annual pace of CPI inflation, however, slowed to 3.6% from 4.1% thanks to base effects, but again came in above forecasts for an easing to 3.5%.

A closely watched measure of core inflation, the trimmed mean, rose 1% in the first quarter, again above forecasts of 0.8%. The annual pace slowed to 4%, from 4.2%.

"It's higher than we were expecting, higher than what the market was expecting and higher than what the RBA would be expecting, so that 1% number will be something that they'll be alarmed about," said Madeline Dunk, an economist at ANZ that tipped for a first rate cut in November.

"I think the RBA will want to be seeing those services and non-tradables numbers decelerate in Q2 and if we don't see that there is a chance we see those rate cuts get pushed out to next year."

Westpac on Wednesday pushed out the expected timing of the first rate cut to November, from September previously, given the slower progress on disinflation and the still healthy labour market.

But it will give salaried and wage workers more ammunition when they enter their next round of pay negotiations. School fees/day care fees have jumped again so we need another pay rise! And round and round we go.

How doesn't it?

The RBA is lifting rates to try to push inflation down.

But according to the ABS, some of the most significant price increases that were pushed through in the March quarter came from the education sector and health services lifting their prices to match CPI, to protect the real value of the fees they charge.

Then there were rents. Rents have increases at their fastest rate in 15 years, thanks to exceptionally low vacancy rates across the capital cities, and record high population growth.

Whatcanthe RBA do about those price increases?

Good question.

Regarding insurance, prices increased by 16.4 per in the last 12 months, which is the strongest annual rise since 2001, according to the ABS.

Higher reinsurance, natural disaster and claims costs continue to drive higher premiums for house, home contents and motor vehicle insurance.

The price rises have become so acute that they're pricing many households out of insurance.

As the ABC story below explained (from a few months ago), extreme flood events in 2022 left insurers stretched, and they've been passing on costs.

But that's just one dynamic. The experts quoted in the story said that higher insurance premiums were going to become more common, as insurers struggle to deal with an increase in severe weather events.

Australian shares cut early gains on Wednesday after a softer-than-expected slowdown in inflation in the first quarter reinforced bets of a higher-for-longer interest rate environment.

The ASX 200 index was up 0.3% to 7,706, by 12:15pm AEST, after rising 0.5% earlier in the day on the back of gains in heavyweight financials and energy stocks.

Data from the Australian Bureau of Statistics showed the consumer price index rose 1% in the first quarter, above market forecasts of 0.8%.

Rate-sensitive financialswere trading 0.7% higher after rising nearly 1% earlier in the day. The "Big Four" banks were all trading in positive territory.

Energy stocks were up 0.2% after gaining as much as 0.8% earlier in the day. Shares of Woodside Energy and Santos climbed 0.2% and 0.3%, respectively.

Gold stocks were up 1.4%. Bullion prices edged lower as fears of an escalation in the Middle East conflict eased, while investors waited for crucial U.S. economic data that could shed more light on the timing of interest rate cuts.

Miners fell 0.2% as iron ore prices slipped on signs of softening in the steel market due to subdued demand in top consumer China.

Shares of BHP Group fell 0.5%, while those of Fortescue flat after the world's fourth-largest iron ore miner reported a 6% dip in quarterly iron ore shipments.

I'd been noting space enthusiast Elon Musk was the second-richest person in the world, behind space enthusiast Jeff Bezos of Amazon.

Blog reader Bart has put forward a correction, and he's right.

The sliding value of stock in Musk's companies mean that he's been overtaken by jujitsu enthusiast Mark Zuckerberg of Meta (Facebook).

Despite promises to punch each other in the face repeatedly for the benefit and amusem*nt of the 99.99%...

... the cage match never happened.

Here's what the Bureau of Statistics has to say about the March quarter CPI numbers:

Quarterly CPI inflation

The most significant contributors to the March quarter rise were Education (+5.9 per cent), Health (+2.8 per cent), Housing (+0.7 per cent), and Food and non-alcoholic beverages (+0.9 per cent).

Education fees:

Education fees increased with the start of the calendar year, showing the strongest quarterly rise since 2012.

Tertiary education rose 6.5 per cent with annual CPI indexation being applied to tertiary education fees.

Secondary education rose 6.1 per cent, followed by Preschool and Primary education (+4.3 per cent) as fees were increased at the start of the school year.

Medical and hospital services:

Prices for Medical and hospital services (+2.3 per cent) typically rise in the March quarter as GPs and other health service providers review their consultation fees.

The Medicare and Pharmaceutical Benefit Scheme Safety Net thresholds are also reset at the start of the calendar year meaning fewer people qualify for subsidised prices for out of hospital services and pharmaceuticals.

Housing:

The quarterly rise in Housing was driven by Rents (+2.1 per cent) and New dwellings purchased by owner-occupiers (+1.1 per cent).

"Rental prices rose 2.1 per cent for the quarter in line with low vacancy rates across the capital cities. Rents continue to increase at their fastest rate in 15 years," Michelle Marquardt,ABS head of prices statistics, said.

Higher labour and material costs contributed to price rises this quarter for construction of new dwellings. The 1.1 per cent increase is slightly lower than the 1.5 per cent rise in the December 2023 quarter.

Food and non-alcoholic beverages:

Food and non-alcoholic beverage prices rose this quarter, driven by Non-alcoholic beverages (+3.4 per cent), Fruit and vegetables (+2.5 per cent) and Food products not elsewhere classified (+1.9 per cent). Partially offsetting the quarterly rise was a price fall for Meat and seafood (-0.7 per cent).

"Meat and seafood prices fell this quarter as increased supply and discounting led to price drops for beef and veal and lamb and goat. Discounting of fish and other seafood and other meats also contributed to the fall," Ms Marquardt said.