Why ASX shares could be rocked on Tuesday

A worried woman looks at her phone and laptop, seeking ways to tighten her belt against inflation.A worried woman looks at her phone and laptop, seeking ways to tighten her belt against inflation.

Watch out for a possible shock to your portfolio of ASX shares on Tuesday afternoon.

According to a survey conducted by comparison site Finder, 55% of economists are tipping the Reserve Bank of Australia to increase its cash rate again after giving Australians a rest over Easter.

That’s despite the latest annual inflation rate cooling to 7%, down from 7.8% for the 2022 calendar year.

Impact Economics and Policy economist Dr Angela Jackson is one expert that reckons that’s not enough relief, so the Reserve Bank will be forced to act at 2:30pm Tuesday.

“The latest inflation figures will provide enough justification for the RBA board to move again on rates, with services inflation in particular likely to weigh heavily on their decision.”

The S&P/ASX 200 Index (ASX: XJO) has risen 5% since the start of the year, but a resumption of interest rate hikes could deal it a blow, as it will further dent already-low consumer and business confidence.

In fact, multiple experts last week predicted share markets could cop a 10% correction in the coming weeks as collateral damage from the ongoing fight against inflation.

Interest rates could be CUT later this year

However, that does mean a significant 45% of the surveyed economists think rates will stay the same this week.

Finder head of consumer research Graham Cooke admitted that’s the most divided sample in 12 months.

“This month’s result is the tightest we’ve seen since the RBA started hiking the cash rate, highlighting the difficulty of managing inflationary pressures without breaking too many household budgets.”

The economists at AMP Ltd (ASX: AMP) are in the optimistic camp.

“Inflation has now peaked and is falling a bit faster than the RBA expected,” said AMP chief economist Dr Shane Oliver.

“Although it’s a close call, this bolsters the case – along with increasing evidence of slowing growth and a cooling labour market – for the RBA to leave rates on hold in May.”

In encouraging words for long-term investors willing to hold onto their portfolios, his colleague Diana Mousina predicted inflation would “surprise to the downside” as 2023 unfolds.

“Given the slowing in goods inflation, signs of a weakening in job openings and employment demand and high recession/downturn risks, services inflation should weaken this year,” Mousina said on the AMP blog.

“We anticipate that inflation will be lower than most are expecting by the end of the year.”

Indeed, a whopping 76% of economists on the Finder survey are tipping that the Reserve Bank will leave rates alone in June.

Stock markets could even be provided with a nice boost later, according to Oliver, with “an eventual cut in rates to support struggling economic growth from later this year and through 2024”.

The post Why ASX shares could be rocked on Tuesday appeared first on The Motley Fool Australia.

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