ASX set to open lower after short RBA relief rally

By Joel Leon

The Australian sharemarket is set to open softer on Wednesday and pare some of the gains made in the previous session after the Reserve Bank pressed pause on its rate hikes.

ASX futures were down 18 points, or 0.25 per cent, at 7226 as of 6:24am AEST amid a lack of direction from Wall Street, which was closed overnight for the Independence Day holiday.

Relief from interest rate rises may be short-lived after the RBA flagged further increases could be on the cards. RBA governor Philip Lowe said the July pause would let the central bank assess the impact of its 12 previous rate rises, but warned more might be needed to get inflation under control.

When Wall Street is closed, trading volumes drop everywhere: London’s FTSE closed 0.1 per cent lower in thin trading.
When Wall Street is closed, trading volumes drop everywhere: London’s FTSE closed 0.1 per cent lower in thin trading.Credit: Bloomberg

In overseas markets, European stocks edged higher overnight in thin trading, led by gains in real estate and health-care shares as investors looked ahead to the monthly report on US employment on Friday for clues to how high interest rates in the world’s largest economy will go.

The Stoxx Europe 600 Index edged up 0.1 per cent by the close in London, having gained as much as 0.3 per cent earlier in the session. Real estate stocks led gains, while carmakers declined. London’s FTSE 100 index closed 0.1 per cent lower, and Germany’s DAX lost 0.3 per cent.

Semiconductor stocks fell after China imposed restrictions on the export of gallium and germanium — two metals that are crucial to parts of the chip industry. Aixtron and IQE were among the sector’s decliners, alongside STMicroelectronics, which is reliant on gallium and germanium for gallium nitride and silicon germanium product lines.

While resilient earnings and bets that central banks will slow their interest-rate-hiking pace have bolstered global markets for the first half of the year, strategists are increasingly saying that recessionary headwinds will weigh on trading for the rest of 2023.

Investors are closely watching America’s jobs report on Friday for clues on the Federal Reserve’s future rate moves.


“Investors are assessing the ongoing impact of tighter monetary policy and the resilience of economies to withstand further interest rate hikes,” Susannah Streeter, head of money and markets at Hargreaves Lansdown. Additionally, the back-and-forth between the US and China over rare metal export curbs may lead to “fresh supply chain snarl ups which could prove inflationary for some sectors,” she warned.

On commodities markets, oil traded above $US71 a barrel a day after OPEC+ linchpins Saudi Arabia and Russia agreed to prop up prices by curbing supply. West Texas Intermediate climbed about 2 percent in New York, though volumes were subdued due to the July 4 holiday. In a flurry of announcements on Monday, Saudi Arabia said it will prolong a unilateral 1 million barrel-a-day supply reduction into August, while Russia declared a cut in exports and output.

In Tuesday’s trading, the Australian sharemarket jumped on the back of the Reserve Bank’s decision to hold the cash rate steady at 4.1 per cent as energy and financials companies climbed. The S&P/ASX 200 was up 32.9 points, or 0.5 per cent, to 7279.0 at the close, even as industrials, iron ore companies and the information technology sector finished weaker.

RBC Capital Markets head of equities Karen Jorritsma said markets had a strong start to the financial year on Monday, and rate-sensitive stocks performed better following the RBA’s announcement. But she warned it was likely to just be a “short-term reprieve” ahead of the next rate decision in August, at which she said investors were broadly expecting a rate rise.

The Australian dollar gained 0.4 per cent to trade near US67¢.

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