Category: Stock Market

The Corporate Travel Management Ltd (ASX: CTD) share price lost altitude during June 2022. It fell by more than 16% last month.

This was noticeably worse than the S&P/ASX 200 Index (ASX: XJO) which ‘only’ fell by around 9%. That’s still a very large drop over one month.

The ASX travel share wasn’t the only one to suffer in June though. The Flight Centre Travel Group Ltd (ASX: FLT) share price also fell by 15%, while the Webjet Limited (ASX: WEB) share price dropped more than 10%.

Corporate Travel didn’t actually announce anything that was deemed to be ‘market sensitive’ to investors during June 2022.

In fact, the last investors heard from Corporate Travel was in early May. I’ll recap that update in a moment but, first, let’s look at what else happened in June.

Interest rate rises

Central banks are highly motivated to get on top of the inflation situation.

Inflation has spiked in Australia, the US, the UK, and many other economies. Central banks have a key tool to try to reduce demand in the economy – increase interest rates. While this may bring inflation under control eventually, there’s also the issue of what it does to asset valuations.

The RBA increased the interest rate by 50 basis points in June. Today, it also raised the interest rate by another 50 basis points at its July meeting.

Why do interest rates matter? Well, as Billionaire Ray Dalio once said:

It all comes down to interest rates. As an investor, all you’re doing is putting up a lump sum payment for a future cash flow.

Higher interest rates, in theory, lower asset valuations.

Improved outlook

While the Corporate Travel Management share price has been suffering, its trading conditions have actually been improving.

Looking at the company’s business update from May 2022, Corporate Travel said it expects to be at least 75% larger than it was in the 2019 calendar year at full recovery. Monthly revenue is expected to beat 2019 levels in the FY22 fourth quarter. It also said that acquisitions made during COVID-19 have been “transformative”.

The business said that it’s recovering faster than the corporate travel sector in its largest regions, with “strong market share gains” in all regions.

Management believes that FY22 fourth-quarter earnings before interest, tax, depreciation and amortisation (EBITDA) will provide “strong momentum” going into FY23.

The company boasted that it has zero debt and sufficient cash to support a full recovery, putting it in a “strong” financial position. It also said it continues to invest in its technology and staff.

Corporate Travel Management share price snapshot

Since the beginning of 2022, Corporate Travel shares have fallen by around 13%.

The post The Corporate Travel share price hit major turbulence in June appeared first on The Motley Fool Australia.

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More reading

• Why did the Webjet share price fall 11% in June?
• These are the 10 most shorted ASX shares
• How did ASX travel shares perform in June?
• ASX 200 travel shares leap as Australia scraps COVID-19 vaccine mandates for international arrivals
• Here’s why I think the Webjet share price could fly higher in 2022

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Corporate Travel Management Limited, Flight Centre Travel Group Limited, and Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Xref Ltd (ASX: XF1) share price plunged today, down 19% to 40.5 cents at the close of trading on Tuesday.

This is despite the human resources technology company reporting record results for FY22.

Xref share price slumps despite record result

In unaudited results released today, Xref reported figures for the final quarter of FY22:

• $5.8 million in sales
• $5.5 million in cash receipts
• $4.6 million in revenue.

The company says this completes a record year, with annual sales of $21 million during FY22. This is up 35% on the previous corresponding period (pcp). Revenue totalled $18.6 million, up 28% on the pcp.

What else did Xref report?

The company said revenue from the use of Xref Credits grew 27%. Sales of Xref Credits grew 4% compared to the previous June quarter.

However, the lower demand for cryptocurrency reduced the identity checks sold by RapidID by 62% compared to Q4 FY21.

As a result, sales were $5.8 million, 9% lower than Q4 FY21.

Xref launches Trust Marketplace

Xref also released a new investor presentation to the ASX today.

It details the company’s ‘next generation platform’ and the new Trust Marketplace product.

In its statement, Xref said:

Sales of identity and graduate checks as well as additional checks from vendors on the Trust Marketplace will replace the reduction in sales from the Crypto market.

RapidID was highly dependent on crypto clients previously and the new growth plan will diversify the revenue sources of Rapid and therefore de-risk that part of the business.

The company said the staged rollout of the next generation platform would continue in FY23.

What did management say?

Xref executive director and CEO Lee-Martin Seymour said:

During the fourth quarter many of the organisations we work with had been adversely impacted by floods, sickness, salary pressure, rising interest rates, the effects of war in Ukraine and the Australian federal election.

However, due to the broad sectors and regions that contribute to our revenue we have once again broken records, remained profitable and demonstrated our resilience.

We are delighted to launch our new investor presentation which showcases our new platform, strategy and value and signals what is set to be a very exciting year ahead.

Chairman Tom Stianos said:

The results for the financial year 2022 signal a strong performance. Sales growth and profitability allow us to continue to invest in growth and execute our strategy.

The team have delivered consistent growth throughout the year whilst keeping costs flat during a time of continued market uncertainty.

The post Xref share price tumbles 19% despite record result for FY22 appeared first on The Motley Fool Australia.

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More reading

• Why did the Fineos share price roar 15% higher today?
• Why the Adore Beauty share price fell another 20% in June
• Own Liontown shares? Here are 3 takeaways from the company’s investor presentation
• Broker names 2 ASX mining shares to buy in FY23
• How did the South32 share price perform in FY22?

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Xref Limited. The Motley Fool Australia has recommended Xref Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Fineos Corporation Holdings PLC (ASX: FCL) share price was in fine form on Tuesday.

The insurance industry software provider’s shares rose 15% to $1.61.

This means the Fineos share price is now up 24% since this time last week.

Why is the Fineos share price charging higher?

Investors have been bidding the Fineos share price higher following a rebound in the tech sector and some positive broker notes.

In respect to the former, the S&P/ASX All Technology Index rose over 2% on Tuesday after investor sentiment improved in the sector.

As for the latter, both Goldman Sachs and Macquarie have been talking positively about Fineos over the last week.

While Goldman Sachs only initiated coverage on the company’s shares with a neutral rating, its price target of $1.65 is still higher than where its shares are trading even after these strong recent gains.

Goldman’s analysts “see Fineos as well positioned to benefit from the long-term structural tailwinds of insurance industry digitisation and shift to cloud software.”

Over at Macquarie, its team are even more positive. Last week the broker put an outperform rating and $2.89 price target on the company’s shares. This implies over 80% upside for the Fineos share price from current levels over the next 12 months.

Macquarie believes that Fineos will outperform its peers in respect to software revenue growth. Yet, despite this, it notes that the company’s shares still trade at a large discount to them.

The post Why did the Fineos share price roar 15% higher today? appeared first on The Motley Fool Australia.

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More reading

• 2 ASX tech shares in the All Ords that soared today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended FINEOS Corporation Holdings plc. The Motley Fool Australia has recommended FINEOS Corporation Holdings plc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Adore Beauty Group Ltd (ASX: ABY) share price sank more than 20% in June 2022, adding to the declines already seen in 2022.

Shares of the e-commerce business declined 22.8% to finish the month at $1.05 apiece. This was significantly worse than what happened with the S&P/ASX 200 Index (ASX: XJO). The ASX 200 fell around 9% last month.

Adore Beauty is Australia’s leading online retailer. It sells more than 11,700 products across more than 270 brands.

Since listing a couple of years ago, the business has shown it was a beneficiary of the online shopping boom as more shoppers chose to buy their products online. However, investor sentiment has soured, particularly in 2022, with the Adore Beauty share price down more than 70% year to date.

What happened in June?

There were no operational announcements out of the company during June.

However, investors learned that Adore Beauty was being kicked out of the S&P/ASX All Technology Index (ASX: XTX).

Also, in the wider economic world, inflation and interest rate rises captured significant headlines and investor attention.

In June 2022, the Reserve Bank of Australia (RBA) increased its interest rate by 50 basis points, or 0.5%, and it has done so again in July with another 50 basis point increase today.

While higher interest rates hurt valuations in theory, it’s also possible that investors may think that demand for Adore Beauty products could take a hit if households have less money to spend on non-essentials.

However, Adore Beauty may have reason to have some confidence about the situation. With the release of the company’s FY22 third quarter update, the CEO Tennealle O’Shannessy said:

Beauty, especially skincare, is unique within the broader retail market and is resilient to economic challenges. Our products are used daily by customers, who consider these items essential and frequently re-purchase. The nature of premium beauty means our customers spend more as they mature on the platform, with returning customers typically contributing more than 70% of total revenue.

What’s next?

The last investors heard from Adore Beauty was the FY22 third quarter where revenue went up 9% year on year to $42.7 million and active customers increased 7% to 880,000.

Next month, Adore Beauty will be releasing its 2022 financial result for the 12 months to 30 June 2022. It may also include a trading update to tell investors how it performed in the first few weeks of FY23.

Adore Beauty snapshot

While the company’s share price has been falling in recent months, since the start of July it has risen by more than 4%.

The post Why the Adore Beauty share price fell another 20% in June appeared first on The Motley Fool Australia.

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More reading

• Why I think the Adore Beauty share price is a great buy today
• What Adore Beauty, Bubs, Eagers Automotive, and Renascor shares are storming higher
• Why the Adore Beauty share price is jumping but Kogan is falling
• Waiting to start investing in ASX shares? Today could be a brilliant time to do it
• 2 ASX growth shares I’d buy right away with $2,000

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Adore Beauty Group Limited. The Motley Fool Australia has recommended Adore Beauty Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Liontown Resources Limited (ASX: LTR) share price is jumping today amid a new investor presentation to the market.

Liontown shares are rising 1.26% and are currently trading at $1.003. For perspective, the S&P/ASX 200 Index (ASX: XJO) is also up 0.49% today.

Liontown is developing the Kathleen Lithium Project in Western Australia. So what did today’s presentation reveal?

1. Lithium supply deficits predicted to continue

Liontown advised shareholders that the lithium market deficit will grow until 2030. The company said this is “driven by “tight supply”. Liontown said:

Analysts estimate that it can take up to 10 years for a lithium project to go online, leaving supply tight in the nearer future. There is currently no substitute for lithium in Li-ion cathodes.

The company noted spodumene producers are heading towards formula-based pricing for offtake contracts to capture “greater margin share” in the lithium supply chain. Liontown added at current spot prices, converters are retaining healthy margins centred on the “prevailing lithium hydroxide prices”.

2. Offtake agreements with Tesla, LG Energy Solution and Ford

Liontown spruiked its offtake agreements with major global companies including Tesla, LG Energy Solution and Ford.

These partnerships involve the production of 450,000 dry metric tonnes (dmt) per year of spodumene concentrate from the Kathleen Valley project.

Liontown noted Tesla is the biggest EV car company in the world, while Ford is also a leading automaker and LG is the second largest battery manufacturer in the world.

Liontown said:

Electric vehicles represent the vast majority of lithium demand and its forecast growth –

3. Mineral resource estimate ‘significant’

Liontown highlighted that Kathleen Valley is funded right through to production. This follows a $463 million equity raise and the $300 million Ford debt facility. This funding will help pay for the development costs of the project.

The company says the project is a “world class lithium deposit with a mineral resource estimate (MRE) of 156Mt at 1.4% lithium oxide.”

In late June, Liontown announced that the company’s board has endorsed the full development of this project.

The company is targeting net zero emissions by 2034.

Liontown share price snapshot

London shares have soared nearly 35% in the past year, while they have lost nearly 40% in the year to date.

For perspective, the S&P/ASX 200 Index (ASX: XJO) has jumped 9% in the past year.

Liontown has a market capitalisation of about $2.2 billion based on the current share price.

The post Own Liontown shares? Here are 3 takeaways from the company’s investor presentation appeared first on The Motley Fool Australia.

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More reading

• Why did the Liontown share price plummet 25% in June?
• Will the Liontown share price bounce back in July?
• Top broker names 3 of the best ASX 200 shares to buy in FY23
• Why have ASX lithium shares had such a lousy month in June?
• Top broker says the Liontown share price can rise 150%

Motley Fool contributor Monica O’Shea has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re wanting to gain a little exposure to the mining sector, then you may want to check out the ASX mining shares listed below.

They have been named among Bell Potter’s top picks for FY 2023. Here’s what the broker is saying:

Arafura Resources Limited (ASX: ARU)

The first ASX mining share that Bell Potter rates highly is Arafura Resources. The broker sees a lot of potential in the company’s Nolans rare earth project. It estimates that it could supply upwards of 8% of the permanent magnet market for electric vehicles and wind turbines.

Bell Potter also highlights that a deal is in the work with Hyundai for up to 30% of its production for the first seven years of operation.

It commented:

ARU’s advanced Rare Earth (RE) project, Nolans, is anticipated to feed potentially 8% of global supply directly into the permanent magnet market servicing expansion of electric vehicles and wind turbines. ARU will look to reach a final investment decision by the end of CY22, with first production expected around the end of CY24 subject to funding which is predicated on securing 85% of planned production over the first 7-10 years. The first step towards binding offtake was taken with Hyundai signing an MoU for up to 30% of production over 7 years beginning in 2025.

The broker currently has a speculative buy rating and 60 cents price target on its shares.

Nickel Industries Ltd (ASX: NIC)

Another ASX mining share that Bell Potter likes for FY 2023 is Nickel Industries. The broker is expecting this nickel producer, formerly known as Nickel Mines, to deliver strong earnings growth thanks to increasing production.

It explained:

NIC has grown to become the largest nickel producer on the ASX and built a track record of ahead-of-schedule project delivery, achieving steady state production above nameplate and returning capital to shareholders. Despite rising input costs in CY22, NIC has been able to maintain and expand margins and following the successful commissioning of the Angel Nickel Project, NIC is on track for earnings growth of over 60%. In CY23, the Oracle Nickel project is on schedule to lift attributable production to ~80ktpa Ni in NPI and drive earnings growth of ~70%. NIC is trading on undemanding valuation multiples and remains one of our Top Picks for CY22.

Bell Potter has a buy rating and $2.00 price target on Nickel Industries’ shares.

The post Broker names 2 ASX mining shares to buy in FY23 appeared first on The Motley Fool Australia.

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More reading

• Mineral Monday: What you need to know about rare earths and which ASX shares are cashing in on them
• What is the current dividend yield on Nickel Industries shares?
• The Nickel Industries share price has tumbled 36% since early March. What’s going on?
• Why is the Arafura share price down 5% on Friday?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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A rough day on the market was turned around this afternoon as many S&P/ASX 200 Index (ASX: XJO) bank shares bounced into the green. Their U-turn came as the Reserve Bank of Australia (RBA) hiked interest rates for a third consecutive month.

Here’s how the ASX 200’s ‘big four’ banks are performing at the time of writing:

• Commonwealth Bank of Australia Ltd (ASX: CBA) – up 0.42%
• Westpac Banking Corp (ASX: WBC) – up 0.56%
• National Australia Bank Ltd (ASX: NAB) – up 0.07%
• Australia New Zealand Banking Group Ltd (ASX: ANZ) – down 0.02%

For context, the ASX 200 is currently up 0.52% while the S&P/ASX 200 Financials Index (ASX: XFJ) has lifted 0.34%.

What’s going on with ASX 200 banks on Tuesday?

ASX 200 banks are trading on Tuesday amid a third rate hike in as many months. The RBA increased the official cash rate by 0.5% to 1.35% – broadly in line with market expectations.

The move is yet another attempt to control inflation, which hit 5.1% in the March quarter.

Rising rates bring positives for banks. It allows them to change their variable loan rates, generally increasing their net interest margins (NIM).

Though, it also increases the likelihood of mortgage foreclosures. That’s particularly worrying as 23.1% of new residential mortgage loans funded during the March quarter were found to have debt-to-income ratios of at least six times.

Passing on the last three rate hikes to borrowers would see those holding a $500,000 mortgage with 25 years remaining paying $333 more in repayments each month, reports RateCity.

On top of that, rising rates can negatively impact housing prices, therefore lowering the value of some banks’ loan books.

It’s also worth noting that other ASX 200 banks are outperforming right now.

Shares in Macquarie Group Ltd (ASX: MQG), Bendigo and Adelaide Bank Ltd (ASX: BEN), and Bank of Queensland Ltd (ASX: BOQ) have gained 1.19%, 0.87%, and 1.48% respectively.

The post What’s going on with ASX 200 bank shares on Tuesday? appeared first on The Motley Fool Australia.

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More reading

• Why the ASX 200 is rallying after the RBA’s rate hike today
• Why is the Woodside Energy share price leading the ASX 200 higher on Tuesday?
• The surprising ASX shares to buy as interest rates rise: expert
• CBA share price slips as analyst warns of $2 billion Klarna scratch
• Why did the ANZ share price underperform the ASX 200 in June?

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Bendigo and Adelaide Bank Limited. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The South32 Ltd (ASX: S32) share price had a turbulent time in FY22. With the end of financial year behind us, the company now trades back in line with its September 2018 levels.

At the time of writing, South32 is rangebound and trades at $3.87 per share, down more than 3% this year to date.

In broad market moves, the S&P/ASX 300 Metals and Mining Index (ASX: XMM) has gained 81 basis points on the day.

South32 share price faced choppy times in FY22

Shares in the diversified miner were propped up by the commodity boom in FY22. Prices for coal and aluminium in particular were very buoyant and remain so into the new financial year.

The former has remained top-heavy, whereas the price for aluminium has retraced back to its 52-week lows of US$2,464 per tonne. Returns for all 3 since March are seen below.

However, just about all of the commodity markets South32 has exposure to rallied hard in FY22.

The benefits of higher pricing were on full display in the company’s March quarter results, with the production and revenue numbers coming in strong.

In the same vein, however, full-year production costs were also forecasted to increase – a point that investors didn’t appear too pleased with at the time.

As a result of the ups and downs of FY22, the South32 share price has managed to secure a roughly 31% gain over the past 12 months to date.

It rallied as high as $5.36 on 7 March 2022 and then reached $5.17 on 8 June, but has since pared gains to its current levels.

Looking ahead, South32 now has its full-year results to be released in the coming months, along with its annual report.

Meantime, 19 analysts rate the share as a buy right now, with 2 analysts saying it’s a hold, per Bloomberg data.

The post How did the South32 share price perform in FY22? appeared first on The Motley Fool Australia.

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More reading

• Experts name these ASX 200 dividend shares with big yields as buys
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• Here are the 3 most heavily traded ASX 200 shares on Monday
• South32 crashes into bear market in June as recession fears bite
• How have ASX 200 mining shares fared over June?

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Electro Optic Systems Holdings Ltd (ASX: EOS) share price is up 3.06% in late trading on Tuesday amid the completion of an institutional $15 million capital raise.

The company is also offering a non-renounceable $2 million share purchase plan (SPP) for eligible existing Electro Optic Systems shareholders.

The net proceeds of the placement and SPP will be used for working capital and near-term capital requirements. Priority will be given to the core defence business.

What does Electro Optic Systems do?

Electro Optic Systems is an Australian technology company that develops and produces electro-optic technologies for the aerospace market.

Of its three reportable segments, defence is its biggest revenue raiser. The other two segments are communication and space.

What are the details of the SPP?

On 29 June, Electro Optic Systems announced a successful non-underwritten placement of 12.5 million new fully paid ordinary shares to institutional investors to raise approximately $15 million.

The placement shares were priced at $1.20 apiece and were issued today.

The company also announced the SPP, giving eligible shareholders the opportunity to purchase up to $30,000 worth of new shares at the same price.

In a letter to shareholders provided to the ASX today, Electro Optic Systems said the SPP was open to investors on the company register as of 7pm AEST on 28 June.

Shareholders can apply to buy parcels of shares in lots of $2,500, $5,000, $7,500, $10,000, $15,000, $22,500, or $30,000.

Investors must apply and pay for their new shares by 5pm AEST on 19 July.

There are no brokerage or other transaction costs involved in the SPP.

What did management say?

Electro Optic Systems chair Peter Leahy, AC, said:

We welcome the support for the Placement and the new institutional investors to the register. On behalf of the Board of Directors of EOS, I would also like to thank our existing shareholders for their ongoing support.

Market update for 1H FY22

Electro Optic Systems also provided the ASX with an update for 1H FY22.

For the six months to 30 June, the company is expecting an EBIT loss of approximately $45 million (unaudited). This includes a $15 million loss relating to SpaceLink.

Electro Optic Systems said two contract delays and the federal election’s impact on new projects affected revenue.

The company provided guidance that it expects FY22 revenue to be equal to or exceed FY21.

The post Own Electro Optic Systems shares? Here’s how the company is raising $17 million appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 200 Index (ASX: XJO) bounced even as the Reserve Bank of Australia (RBA) lifted interest rates to a more than three-year high today.

The central bank increased the cash rate by 50 basis points to 1.35% as it moved to curb high inflation. Rates have not been this high since May 2019.

Higher rates are typically bad news for ASX shares, but there could be a good reason why investors see a silver lining.

Why ASX 200 shares jumped with the RBA rate hike news

For one, RBA Governor Philip Lowe seems to be sitting on the fence when it comes to the size of future rate hikes.

Many economists are predicting the RBA will follow through with at least another 50-point hike next month.

While the RBA indicated further hikes are on the way in the coming months, Lowe’s statement was more balanced than some might have thought.

Another big interest rate hike isn’t a given

If anything, our central bank said the size and timing of future hikes will be guided by incoming data. This suggests another large hike next month isn’t a given.

This could explain why the ASX 200 moved higher on the news to trade 0.6% in the black in the last hour of trade. It also explains why the Australian dollar stayed sluggish at around US68.6 cents. The Aussie would have jumped if the RBA was more hawkish.

Biggest swing factor

It appears that a key swing factor the RBA is watching is household spending. Recent economic data suggests spending remains positive although this could change. Lowe said:

Household budgets are under pressure from higher prices and higher interest rates. Housing prices have also declined in some markets over recent months after the large increases of recent years. The household saving rate remains higher than it was before the pandemic and many households have built up large financial buffers and are benefiting from stronger income growth. The Board will be paying close attention to these various influences on household spending as it assesses the appropriate setting of monetary policy.

This suggests that if we don’t want much higher rates, we should curb our spending.

Other things the RBA is watching

The other factors that the RBA will be watching are employment and the outlook for inflation. Lowe appears to be a little more confident with forecasting these remaining drivers.

He noted that the labour market looks to be strong due to the worker shortage. The unemployment rate fell to a near 50-year low of 3.9% in May, while underemployment also declined significantly. The RBA believes this trend is likely to persist in the months ahead.

Meanwhile, the RBA is forecasting inflation to peak this year before quickly falling back to its 2% to 3% comfort zone next year.

So, if households do cut back on consumption, interest rates may not need to climb as quickly or as high as the markets fear, even if employment remains low.

The post Why the ASX 200 is rallying after the RBA’s rate hike today appeared first on The Motley Fool Australia.

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More reading

• Why is the Woodside Energy share price leading the ASX 200 higher on Tuesday?
• The surprising ASX shares to buy as interest rates rise: expert
• Wipeout: Why did the Magellan share price sink 70% in FY22?
• ASX 200 midday update: Regis Resources jump, big four banks fall ahead of RBA meeting
• Why ASX 200 value shares are surviving the sell-off better than growth shares

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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