The Zip Co Ltd (ASX: ZIP) share price is back on the horse on Wednesday. Its recovery comes as the S&P/ASX 200 Information Technology Index (ASX: XIJ) leads the market, gaining 3.57%.

At the time of writing, the Zip share price is 60.5 cents, 18.63% higher than its previous close.

For context, the S&P/ASX 200 Index (ASX: XJO) is currently down 0.25%.

Let’s take a look at what might be going on with the ASX 200 buy now, pay later (BNPL) share and its tech peers today.

What’s driving the Zip share price higher today?

ASX 200 tech stocks are launching higher on Wednesday and the Zip share price is leading the way.

That’s despite the Reserve Bank of Australia hiking interest rates 50 basis points to 1.35% yesterday. The move is likely bad news for consumer sentiment and could have been expected to weigh on the BNPL giant’s stock today.

While Zip isn’t technically a tech share – it’s at home on the S&P/ASX 200 Financials Index (ASX: XFJ) – the company’s stock tends to trade in line with its technology-focused peers.

The tech sector’s rally might be a reaction to a strong session on the tech-heavy NASDAQ index on US markets overnight.

The Nasdaq Composite lifted 1.75% in Tuesday’s session overseas following a public holiday on Monday.

Its surge also comes as bond yields fall. US 10-year yields fell by around 2.8% overnight.

LPL Financial’s Quincy Krosby has reportedly linked falling bond yields with potential gains among tech stocks. Krosby was quoted by News.com.au as saying:

The concern of a recession is deepening … You look for growth, where you can find it. Many of those large tech names that have been beaten up by the market become attractive again, particularly when the bond yields are lower.

Today’s gain leaves the Zip share price 86% lower than it was at the start of 2022. The ASX 200 tech sector has also slumped 34% year-to-date.

The post Zip share price reignites with a 19% rally amid tech bounce appeared first on The Motley Fool Australia.

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More reading

• Up and back down: Why is the Zip share price volatile today?
• The Zip share price lost 94% of its value in FY22
• What on earth happened to ASX 200 tech shares in June?
• Why Austal, Mesoblast, Regis Resources, and Zip shares are charging higher
• Why is the Zip share price jumping 11% today?

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 positions in and has recommended ZIPCOLTD FPO. 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 South32 Ltd (ASX: S32) share price has been among the worst performers on the ASX 200 on Wednesday.

In morning trade, the mining giant’s shares were down as much as 8% to $3.55.

The South32 share price has since recovered a touch but remains down 5.5% at the time of writing.

Why is the South32 share price sinking?

Investors have been selling down the South32 share price on Wednesday following a pullback in commodity prices.

Commodity prices tumbled lower overnight after recession fears intensified, sparking concerns that demand for many metals and energy products could weaken.

Among the worst performing metals were aluminium and copper which fell 3.2% to US$1.08 per pound and 4.2% to US$3.44 per pound, respectively, during overnight trade. Copper’s decline took it to a 19-month low.

This doesn’t bode well for South32, which generates significant earnings from these metals.

For example, Goldman Sachs is forecasting earnings before interest, depreciation, and amortisation (EBITDA) contributions of US$2,025 million from South32’s aluminium operations and US$678 million from its copper operations in FY 2023.

This is the equivalent of 38.5% and 12.9% or the group EBITDA of US$5,260 million Goldman is expecting for the year.

And given that Goldman is expecting an average aluminium price of US$1.70 per pound and an average copper price of US$5.53 per pound, these estimates could prove to be wide of the market based on current prices.

In light of this, it isn’t overly surprising to see the South32 share price fall today.

The post South32 share price heads 8% south on high volumes, but why? appeared first on The Motley Fool Australia.

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• How did the South32 share price perform in FY22?
• Experts name these ASX 200 dividend shares with big yields as buys
• 3 more of Morgans’ best ASX share ideas for July
• Here are the 3 most heavily traded ASX 200 shares on Monday
• South32 crashes into bear market in June as recession fears bite

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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The Fortescue Metals Group Limited (ASX: FMG) share price is coming under selling pressure during morning trade.

This is despite the iron ore mining outfit not releasing any price-sensitive announcements to the ASX.

At the time of writing, Fortescue shares are fetching at $16.62 apiece, down 4.04%. Earlier in the session, the company’s share price hit a low of $16.39, a 5.36% drop on yesterday’s close.

For context, the S&P/ASX 200 Index (ASX: XJO) is treading also treading lower, down 0.14% so far today.

Let’s take a look at what’s dragging down the miner’s shares today.

Iron ore prices continue to sink

After stabilising for the last four weeks around the US$130 per metric tonne mark, iron ore prices have resumed their descent.

According to Trading Economics, the steel-making ingredient is trading at US$113 per tonne as of last night. This represents a fall of 21% compared to this time last month.

Mining.com reported that there’s currently weak demand for iron ore as Chinese steel mills put their blast furnaces on hold. This is due to COVID-19 restrictions in the country as well as bad weather amid a gloomy economic outlook.

With rampant inflation and aggressive rate hikes from major central banks, investors are bracing for slower economic growth worldwide.

These negative factors have put downward pressure on iron ore prices which, in turn, impacts Fortescue’s earnings.

Other shares in miners such as BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) are down 3.8% and 4.33%, respectively.

It’s worth noting that Fortescue sometimes suffers larger share price drops than its peers due to the lower-grade iron ore the company produces.

At 62% Fe (iron), Fortescue’s product is sold at a discounted rate below the benchmark price as opposed to its peers.

Fortescue share price snapshot

Adding to today’s decline, the Fortescue share price has tumbled almost 30% in the past 12 months.

When looking year to date, its shares are down around 13%.

Fortescue presides a market capitalisation of approximately $51 billion.

The post Why is the Fortescue share price slipping 5% today? appeared first on The Motley Fool Australia.

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• Why did the Fortescue share price sink in FY22?
• 5 things to watch on the ASX 200 on Tuesday
• 5 things to watch on the ASX 200 on Monday
• Should investors dig the Fortescue share price in July?
• How did the Fortescue share price perform in June?

Motley Fool contributor Aaron Teboneras 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 OZ Minerals Limited (ASX: OZL) share price is taking a belting this morning even after a leading broker upgraded its shares.

Shares in the copper miner fell around 5% in early trade – making it one of the worst performers on the S&P/ASX 200 Index (ASX: XJO).

The silver lining is that its shares recovered some ground to be down 1.26% at $17.23 at the time of writing.

OZ Minerals share price looking too cheap to ignore

The upgrade by Morgans may be helping. The broker lifted its recommendation on the OZ Minerals share price from hold to add, as it believes it is “far too oversold”.

OZ Minerals has shed a whopping 40% in value since the start of this calendar year.

Technical issues at its Carrapateena project, rising costs, and a weakening outlook for copper have weighed on the miner.

Recession fears tarnishing the copper outlook

The copper price has dived on fears of a looming global recession. It wasn’t that long ago that experts were forecasting supply constraints, but a recession would limit demand for the metal.

While Morgans acknowledges that uncertainties remain, it believes the outlook for the red metal isn’t as bad as some might believe.

The broker explains:

The long-term structural drivers appear intact despite marginal investors selling uncertainty. Despite short-term opacity, we note several macro shocks in recent years have proved compelling entry opportunities.

What is the OZ Minerals share price worth?

The opportunity looks even more compelling given where the OZ Minerals share price is currently sitting. The miner traded up to 1.3 times net present value (NPV) through 2021 due to over-excitement about “green metals”, which prompted Morgans to slap a hold on the shares.

But OZ Minerals is currently on 0.76 times NPV. The broker calls this “excessively cheap”. It also noted that the OZ Minerals share price has rebounded from these levels before during similar sell-offs.

Morgan’s 12-month price target is $23.12, which implies a more than 30% upside to the OZ Mineral’s share price.

Catching a falling knife  

However, Morgans warned would-be buyers that it may be “tactically prudent” for traders and short-term investors to wait. This is because the OZ Minerals share price could fall further in this climate of fear.  

OZ Minerals isn’t the only company under this dark cloud. Fellow copper producers Sandfire Resources Ltd (ASX: SFR) and South32 Ltd (ASX: S32) have also fallen out of favour, down 4% and 5% respectively.

The post Broker upgrade fails to stop the OZ Minerals share price from falling today appeared first on The Motley Fool Australia.

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• Why Argosy Minerals, Cann, OZ Minerals, and PointsBet shares are pushing higher
• ASX 200 midday update: Energy shares drop, PointsBet jumps
• What’s behind the weakness in ASX 200 mining shares during June?
• 5 things to watch on the ASX 200 on Tuesday
• Why Evolution, Newcrest, OZ Minerals, and Zip shares are dropping today

Motley Fool contributor Brendon Lau has positions in OZ Minerals Limited, Sandfire Resources NL, and South32 Ltd. 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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Financial year 2022 (FY22) was a busy period for now S&P/ASX 200 Index (ASX: XJO) tech staple, Block Inc (ASX: SQ2) and its share price.

While the payment service provider didn’t reach the Aussie market until January, it was the talk of the town for most of FY22 after announcing its plan to acquire former market darling and ASX buy now, pay later (BNPL) share Afterpay.

But between listing on the ASX and the end of FY22, the Block share price tumbled 48.7% to trade at $90.50.

For context, the ASX 200 slumped around 10% across the entirety of FY22.

Let’s take a closer look at what happened to Block and its share price over the course of last financial year.

What went wrong for the Block share price in FY22?

The Block share price first emerged on the ASX on 20 January, closing its first session at $176.63. Shares in the company hit the market after being issued to those previously invested in Afterpay.

Block proposed to take over the BNPL giant in August 2021, offering 0.375 Block (then Square) shares for each Afterpay stock to do so. The deal was valued at around $39 billion at the time.

However, that value tumbled alongside Block’s US listing, Block Inc (NYSE: SQ)’s share price. It fell around 55% between the acquisition’s proposal and its implementation.

Of course, the company also underwent a name change last financial year. Block was born from Square on 10 December. On announcing the switch, the company said:

The name has many associated meanings for the company — building blocks, neighbourhood blocks and their local businesses, communities coming together at block parties full of music, a blockchain, a section of code, and obstacles to overcome.

Finally, the most recent results released to the ASX from the payments and BNPL giant dropped in May.

Block’s revenue fell 22% to US$3.96 billion in the first quarter. Though, when excluding revenue from Bitcoin (CRYPTO: BTC), it increased by 44%. The company’s gross profit was also up 34% year-on-year, reaching US$1.29 billion.

However, it was likely a broader tech sell-off that damaged the Block share price most.

The S&P/ASX 200 Information Technology Index (ASX: XIJ) had a rough start to 2022 as uncertainty reigned. Then, tech stocks were once again among the hardest hit as inflation and resulting rate hikes kicked off.

The tech sector slipped around 40% over the course of FY22.

The post Why did the Block share price have such a lousy time in FY22? appeared first on The Motley Fool Australia.

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• Here are the top 10 ASX shares today
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• The Block share price plummeted 28% in June. Here’s why
• 5 things to watch on the ASX 200 on Monday

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 positions in and has recommended Bitcoin and Block, Inc. The Motley Fool Australia has positions in and has recommended Block, Inc. 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 Sayona Mining Ltd (ASX: SYA) share price had an incredibly volatile month in June.

Although the lithium developer’s shares recorded a monthly decline of 32%, that’s only part of the story.

What happened to the Sayona Mining share price in June?

Sayona Mining and other lithium shares came under significant pressure last month for a number of reasons. These include a bearish note out of Goldman Sachs and news that BYD is planning to buy a large number of lithium mines.

In respect to the latter, Warren Buffett-backed electric vehicle company BYD is reportedly planning to buy six lithium mines in Africa with the aim of producing approximately 1 million tonnes of lithium carbonate each year.

That would be enough to build at least 27.78 million electric vehicles, which covers the automaker’s expected demand for the next decade.

This means that as well as increasing overall supply, it would take a major lithium buyer out of the chain, which could have a big impact on the demand side of the equation. And if other automakers decide to follow suit, lithium developers like Sayona Mining could end up being bypassed.

What else?

Also weighing on the Sayona Mining share price was a note out of Goldman Sachs. Although the broker has been predicting a sharp decline in lithium prices in the coming years for some time, its latest note reiterating this view caught the attention of investors this time around.

This had investors panicking that lithium prices will be nowhere near current levels when Sayona Mining and other developers finally get around to producing and selling the white metal.

Following these events, the Sayona Mining share price eventually dropped as much as 50% month to date before a late rebound pared some of these declines.

That rebound was driven by the release of an update on drilling activities in Canada. Those results reveal that the Moblan deposit has the potential to become a world-class deposit.

Here’s hoping that July is a better month for shareholders.

The post Why did the Sayona Mining share price crash 32% in June? appeared first on The Motley Fool Australia.

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• Why Regis Resources, Sayona, Woodside, and Xero shares are pushing higher
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• Why are Sayona Mining shares the most actively traded of the All Ords today?
• Sayona share price surges 25% on lithium production plans

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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The GrainCorp Ltd (ASX: GNC) share price is heading south in early trade on Wednesday morning, despite no company announcements.

At the time of writing, shares in the Australian agribusiness are down 6.12% to $8.59

Why are GrainCorp shares in reverse today? 

Following the company’s half-year results released on 11 May, investors are eyeing GrainCorp shares as they go ex-dividend today.

Typically, one business day before the record date, the ex-dividend date, is when investors must have purchased shares. If the investor did not buy GrainCorp shares before this date, the dividend will go to the seller.

What does this mean for GrainCorp shareholders?

For those eligible for GrainCorp’s dividend, shareholders will receive a payment of 24 cents per share on 21 July. The dividend is fully franked and comprises a 12 cent interim dividend and a 12 cent special dividend.

The interim dividend reflects a 50% increase compared to the prior corresponding period (8 cents per share).

And in case you weren’t aware, the 24 cent total dividend is the largest dividend that has been paid by the company since 2013.

Are GrainCorp shares a buy now?

Following the company’s financial scorecard, one broker weighed in on the GrainCorp share price.

According to ANZ Share Investing, the analyst team at Wilsons cut its price target by 9.4% to $8.80 for the grain exporter’s shares. The team believes that GrainCorp shares are fully valued for the time being.

Based on today’s price, this is roughly in line with where the company’s shares are currently trading.

GrainCorp share price snapshot

Looking at the past 12 months, the GrainCorp share price has accelerated 70% on the back of favourable trading conditions.

In contrast, the S&P/ASX 200 Consumer Staples (ASX: XSJ) sector has risen by around 2% over the same timeframe.

GrainCorp shares reached an all-time high of $10.86 in May, before backtracking amid inflationary movement and cost of living pressure.

The company commands a market capitalisation of roughly $2.09 billion, and has a dividend yield of 1.93%.

The post Here’s why the GrainCorp share price is shedding 6% today appeared first on The Motley Fool Australia.

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• 5 things to watch on the ASX 200 on Wednesday
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Motley Fool contributor Aaron Teboneras 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 Pilbara Minerals Ltd (ASX: PLS) share price plunged in June, but could July be a better month?

The ASX lithium share price tumbled from $2.95 to $2.29 between market close on 31 May and 30 June, down 22%. At the time of writing, the company’s share price is down 0.88% at $2.24. For perspective, S&P/ASX 200 Materials Index (ASX: XMJ) is also down 2.73% so far today.

So what could be in store for the Pilbara Minerals share price in July?

Pilbara share price outlook

Pilbara is a lithium producer focused on the Pilgangoora Project near Port Headland in Western Australia.

The company was not the only ASX lithium share to tumble in June. Lake Resources NL (ASX: LKE) fell 49% between market close on 31 May and 30 June. Over the same period, the Core Lithium Ltd (ASX: CXO) share price also lost 31% and Sayona Mining Ltd (ASX: SYA) fell nearly 32%.

However, a recent broker note from Ord Minnett is predicting better times ahead for Pilbara Minerals. The broker placed a $4.25 price target on the lithium producer’s shares with a buy rating. This is almost 90% more than the current share price at the time of writing.

The broker is optimistic on future lithium prices after Pilbara’s latest offer at a Battery Material Exchange (BMX) auction.

On 23 June, Pilbara advised it accepted a bid worth US$7,000 per dmt [dry metric tonne] in advance of an auction on the BMX.

Meanwhile, Macquarie has also tipped significant upside for the Pilbara share price. Analysts have placed a $3.90 price target on the shares and kept an outperform rating. The broker was also impressed with Pilbara’s auction result and sees lithium prices remaining strong.

On 27 June, Pilbara advised its quarterly production jumped by an estimated 54% compared to the March quarter to 123-127,000 dmt.

Earlier in the month, Pilbara also announced Dale Henderson will be the company’s new managing director and CEO.

The Pilbara share price ended June on a high, jumping nearly 12% between 23 and 30 June. Pilbara is planning another BMX auction in the second week of July.

Share price snapshot

The Pilbara share price has exploded nearly 51% in a year but year to date, it has pulled back 30%.

The company has a market capitalisation of about $6.6 billion based on its current share price.

The post Can ASX lithium share Pilbara recover in July after slumping 22% in June? appeared first on The Motley Fool Australia.

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• Why has the Pilbara Minerals share price soared 57% in FY22?
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• Why did the Pilbara Minerals share price tumble 22% in June?
• Here are the 3 most heavily traded ASX 200 shares on Thursday

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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The Commonwealth Bank of Australia (ASX: CBA) share price closed the 2022 financial year down 9.5%, almost identical to the losses posted by the benchmark S&P/ASX 200 Index (ASX: XJO) in FY22.

On 30 June 2021, CommBank was trading for $99.87. Last week, on 30 June 2022, the CBA share price closed at $90.38.

Share buybacks and strong financials

The CBA share price closed the financial year lower despite some strong financials reported by the bank.

In its half year results, reported in February, the bank revealed a 23% year-on-year increase in its cash net profit after tax, which reached $4.75 billion. CommBank also upped its fully franked dividend by 17% to $1.75 per share. And, to sweeten the pot, it announced another $2 billion on market share buyback, following on its earlier $6 billion off-market buyback. 

The big bank’s third quarter results, reported in May, were also strong, beating consensus expectations. Among the highlights lifting the CBA share price on the day, the bank reported quarterly cash profits of $2.4 billion, in line with its strong half year figures.

Following the quarterly release, CommBank’s CEO, Matt Comyn said, “Continued growth in household deposits, home loans, business lending and business deposits was a feature of the quarter. The Group maintained strong balance sheet settings and paid $3 billion in half-year dividends to shareholders.” 

While that was true for the quarter gone, it’s the home loan outlook that may have put the CBA share price under pressure over the last month of 2022.

What pressured the CBA share price in June?

Heading into June, CBA shares were still in the green for FY22. 

But over the last month of the financial year, shares tumbled a painful 13.4%. 

Shares in Australia’s biggest bank, and indeed all the big banks, came under selling pressure following outsized rate hikes from the US Federal Reserve and the Reserve Bank of Australia. With more rate hikes slated in the months ahead. 

While gradually moving rates higher can be good for banks as they’re able to increase their net interest margins, rapid rates can see new loan issues shrink and bad debts rise. 

Of particular concern for the CBA share price is the potential of a sharply weaker housing market impacting its lucrative mortgage lending sector. 

The post What happened with the CBA share price in the 2022 financial year?  appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben 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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Ask a Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In part one of this edition, we’re joined by Yarra Capital Management’s fixed income specialists, Darren Langer, co-head of Australian fixed income, and Chris Rands, co-portfolio manager of the Yarra Australian Bond Fund. Today they explain why it appears the market is overpricing in the expected interest rate rises from the RBA, and what this means for the inflation outlook and the Aussie housing market.

The Motley Fool: A lot of investors were caught off guard by the hawkish tightening we’re seeing from the US Fed and RBA. What’s your outlook for inflation and interest rates in 2022 and heading into 2023?

Darren Langer: The risk was that central banks would overreact. And that’s basically what’s happened and is still happening to some extent.

But we think that things are going to start to slow down much faster than what central banks are expecting. You might start to see a shift in some of that rhetoric in the next few months. But for now, particularly the Fed, they’re very hawkish. That’s obviously not a great thing for bond markets or for risk assets when they’re in that sort of mode.

Chris Rands: Really, as far as people being caught off guard with inflation, it’s the oil price shock that occurred from the Russian Ukraine invasion.

Looking through our inflation indicators, commodity and food prices are causing a large increase in inflation levels. It was very hard to see this coming, and it is this shock that’s taken inflation a leg higher.

If you assume that conflict will continue, then the oil price should remain high. Food prices should remain high. So that sets it up to have a base of higher inflation than the 2012 to 2019 period.

If the RBA is saying we’re going to get this inflation down by hiking rates, it stands to reason that it needs to come from things that are not oil and not food. So something else needs to come down to bring inflation down. Whether that’s rents or whether that’s consumer discretionary spending or something like that, those are the prices that they’re going to be targeting.

Looking at the US, there are signs that that’s starting to occur. You’re starting to see inventories build and those types of things. From that perspective, it looks like inflation should be a bit sticky for the next 12 months. And that puts the RBA in a position to raise rates. But we don’t think it’s going to be anywhere near as high as what the market expects.

MF: What level of interest rates are you expecting from the RBA?

CR: My calculations for what the economy can handle suggest a cash rate of 1.5%, that’s probably about neutral. Once you start going beyond that I think you’re going to start causing a bit of stress on people who’ve borrowed too much money over the past 18 months.

If the RBA wants to get back to neutral, it should start at 1.5%. If they really want to slow the economy down because they think it’s too hot, they probably need to go above 2%.

MF: When can investors expect some easing?

DL: I think this is going to be a similar tightening cycle to what we observed in 1994. That was a very rapid tightening cycle, both by the Fed and the RBA, but within the next 12 months, they were both easing interest rates. So, as you get towards the back-end of 2023, if they keep hiking fairly aggressively, they’re more than likely going to have to start cutting rates.

Markets are starting to price in that eventuality. You’re starting to see the longer-dated futures contracts pricing is easing now. Whereas before the yield curve has been quite steep, and they were pricing higher rates forever. Now they’re starting to realise that rate hikes are biting much faster than central banks would have thought.

MF: One of the big concerns right now is how higher interest rates will impact the Australian housing market. What’s your outlook?

DL: We feel house prices are going to be under some pressure. We’ve had such a rapid rise in prices over the last 12 months, and a lot of those people borrowed a lot of money. There are a lot of fixed-rate loans starting to come off in the next six to 18 months, so that will bite quite quickly.

In Australia, most of our housing market is floating rate rather than fixed-rate, like in the US. So it bites a lot quicker here, which is one of the reasons we don’t think the RBA is likely to tighten interest rates as much as the Fed will.

CR: For the housing market, wages over the past three years have barely moved, whereas house prices have risen 30%. A big chunk of that, in my opinion, is just low rates. And if you move rates back the other way, then you need to take some of those prices out.

If the RBA stops at 1.5%, which I think is neutral, then you might look at 2019-2020 levels for where house prices will stop. If rates go back to 2.5% or 3% like the market is forecasting, then it could be worse than that.

***

Tune in tomorrow for part two of our interview, where Yarra Capital’s Darren Langer and Chris Rands discuss fixed income investing strategies in the new higher rate environment.

(You can find out more about the Yarra Australian Bond Fund here.)

The post Why the RBA is unlikely to hike interest rates to the heights the market has priced in: fund managers appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben 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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