Market Update - 18th May 2024

Written by William Cooper

Domestic:

This week, Australians watched intently on the announcement of this year’s budget, which to summarise, will attempt to relieve the population of cost-of-living pressures whilst keeping inflation low. However, you can read all about that here on our article summarising all the key information. This fortnight’s Market Update, we will be focusing on the RBA decision and capital markets.

Interest rates were left on hold for the 4th consecutive time, with RBA governor, Michelle Bullock, remaining content with the current level the cash rate is at. She has emphasised that the current policy is “sufficiently restrictive”, and that the strong performance in equity markets is due to the fact that the business sector is not being impacted as heavily as households are. Bullock explained that Australia’s high-share of variable rate mortgages make households susceptible to interest rate movements, which was a key consideration during discussions with the board. The target inflation range remains at 2-3% at the time of meeting, and 2025 will remain the goal for reaching this target. Bullock did comment on the potential impacts the federal budget could pose to the target inflation goal, but until new forecasts are created, we are unsure as to how the RBA will respond to the announcement.

The ASX has tracked higher this fortnight, up 3% over the period being driven by a rise in Wall Street, as well as positive sentiment around the RBA’s rate decision. All sectors across the ASX saw strong performances, particularly interest sensitive industries, such as property, but it was utilities that outperformed, with large cap shares such as AGL, APA and Origin all recording strong gains.

International:

Wall Street has not registered a loss over the past fortnight, exhibiting slow yet consistent growth as consumer sentiments were on hold for upcoming US inflation data which was announced to be an anticipated 3.4%. Similarly to the ASX, the Utilities and Real Estate sector were the leading contributors for the S&P 500, which is beginning to become no real surprise as domestic market performance has been tracking the US markets so very closely for a long time now.

Germany’s DAX Index is currently reaching all-time highs, catalysed by encouraging trade data out of China, bolstering German export-oriented shares, leading to large demand for these companies. Germany similarly looked to the world’s largest economy, and expressed its confidence in US rate decreases, after American unemployment figures were released. The DAX is dominated by companies who conduct business internationally, especially in the US, and are less dependent on the German market. Therefore, it is an index which is sensitive to movements in foreign indexes, and worldwide indexes are up. Inflation in the Eurozone continues to fall faster than expected, which is encouraging signs for the European Central Bank to look at cutting interest rates in the upcoming meeting on June 6th in Frankfurt.