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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

April was pretty rough for investors of digital currencies. All eight of the world’s most valuable cryptocurrencies — not including stablecoins — posted double-digit percentage declines. Stocks and bonds also took big steps back last month, but crypto led the sinkers between the three asset classes. 

It’s frustrating. Investors who turned to crypto as a way to diversify into alternative assets aren’t seeing a disconnect between cryptocurrencies and the stock market. The downticks and volatility have been even worse through the Wall Street drawdown. Things look pretty bleak right now, but is it too early — or perhaps too late — to throw in the towel? Let’s go over the grim landscape before ending on a more promising note.

Tales from the crypto

There are plenty of good reasons for the recent retreat of cryptocurrencies. Gas fees for Ethereum (CRYPTO: ETH) transactions continue to be high, briefly spiking late last week as a result of a popular non-fungible token (NFT) marketplace release. With the next phase in Ethereum’s migration to a proof-of-stake model possibly not completed by next month, it could be another confidence crunch.

Even more conservative crypto investors are getting smoked. Crypto has become popular among income investors with some wiggle room when it comes to risk. Many exchanges and decentralized finance platforms allow investors to earn healthy interest by allowing the stablecoins and riskier tokens to be staked, loaned out, or otherwise pledged by the platform operator. April was brutal on that front. Many platforms have been reeling back the available yields, and regulatory concerns have seen some options bow out of certain regional markets. 

It also doesn’t help fans of staking stablecoins in pursuit of healthy income that bond rates themselves are on the rise. You can buy an inflation-indexed Series I savings bond today directly from the U.S. Treasury with an annualized interest rate of 9.62% for the next six months. The rates adapt to inflation rates every six months — and investors lose three months of interest if the bonds are redeemed within one to five years — but it does make riskier crypto money makers less attractive. 

Inflation has hurt another way. Consumer savings rates will be challenged as folks have to spend more on essentials. The end result is less money to invest in any market. 

Things don’t have to end badly for crypto traders. We’ve seen sharp corrections and crashes in the past. Ethereum and its digital peers have always managed to claw their way back. Geopolitical unrest could also inspire more international traders to diversify away from their home fiat currencies. 

Ethereum itself will eventually complete its transition to Ethereum 2.0. High gas fees may continue to be problematic, but there are other cryptocurrencies specializing in ways to make transacting in Ethereum easier, faster, and cheaper.  

It’s not easy to call a bottom after crypto corrections. Technical analysis may be the same, but investors don’t have the same fundamentals and valuation ratios to assess the way they do in sizing up equities. The crypto market still has time to work its way through — and ideally out of — the April malaise in May. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Can cryptocurrency bounce back in May? appeared first on The Motley Fool Australia.

More reading

• Why Bitcoin, Ethereum, and Coinbase Jumped Today
• Why Shiba Inu, Ethereum, and Dogecoin are sinking today
• Crypto king Bitcoin to be dethroned by this hot rival: experts
• Bitcoin, Ethereum, and Cardano are turning it around today. Here’s why
• Why Bitcoin, Ethereum, and XRP are struggling today

Rick Munarriz has positions in Ethereum. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Ethereum. 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.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Metalstech Ltd (ASX: MTC) share price is exploding today on the back of a gold discovery.

The company’s shares are currently swapping hands at 30 cents, a 20% gain. This comes after an intraday high of 35 cents a share, a 40% jump on yesterday’s closing price.

The company’s gains contrast with the S&P/ASX 200 Resources Index (ASX: XJR) today. It’s currently down 0.84%.

So what is causing this ASX gold explorer’s share price to surge today?

Drilling intersects gold

Metalstech provided an update on a “bonanza gold intersection” from drilling at the company’s Sturec Gold Mine in Slovakia.

Drilling at hole UGA-30 intersected with a thick mineralised zone of 173.2 metres (m) at 3.27 grams of gold per tonne (g/t) and 11.8 g/t of silver from 0m. This included 103m at 5.06 g/t gold and 13.4 g/t silver from 57m.

Meanwhile, drilling at hole UGA-25 intersected with a thick mineralised zone of 53m at 0.86 g/t of gold and 10 g/t of silver from 95m.

Commenting on the news, Metalstech director Gino D’Anna said:

The ore body at Sturec continues to deliver impress zones of gold mineralisation.

Our drilling has grown the confidence of the existing Sturec Mineral Resource and demonstrated that the mineralisation extends further to the south along strike of the existing resource and remains open down dip/plunge.

The company has completed drilling 12 diamond drill holes from the second drill chamber and eight from the third drill chamber. A nine drill hole within his third chamber is currently in progress.

Share price snapshot

The Metalstech share price has surged more than 210% in the past year while it’s gained 3.45% in the year to date.

For perspective, the benchmark S&P/ASX 200 Index (ASX: XJO) has gained just over 4% during the past year.

Metalstech has a market capitalisation of about $50 million based on the current share price.

The post Metalstech share price booms 20% on ‘bonanza gold’ discovery appeared first on The Motley Fool Australia.

More reading

• Here are the 3 most heavily traded ASX 200 shares on Tuesday
• Can cryptocurrency bounce back in May?
• Why AGL, Booktopia, Cleanaway, and Corporate Travel Management shares are dropping
• Have investor fears set ASX 200 shares up for a rebound?
• Imugene share price seesaws on ‘clarification announcement’

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 S&P/ASX 200 Index (ASX: XJO) is on course to record another decline. In afternoon trade, the benchmark index is down 0.35% to 7,320.9 points.

Four ASX shares that are falling more than most are listed below. Here’s why they are dropping:

AGL Energy Limited (ASX: AGL)

The AGL share price is down 3% to $8.37. Investors have responded negatively to news that Mike Cannon-Brookes has snapped up an 11.28% blocking stake in the energy company. Mr Cannon-Brookes wants to prevent AGL’s demerger. Though, management revealed that it remains committed to progressing the proposed demerger and believes it is in the best interests of AGL shareholders.

Booktopia Group Ltd (ASX: BKG)

The Booktopia share price has crashed 25% to 47 cents. Investors have been selling this online book retailer’s shares after it released a disappointing trading update and announced the shock resignation of its co-founder and CEO. In respect to the former, revenue for the quarter fell 1% over the prior corresponding period to $64.5 million and EBITDA fell 65% to $1.5 million.

Cleanaway Waste Management Ltd (ASX: CWY)

The Cleanaway share price is down 4% to $3.02. Investors have been selling this waste management company’s shares after it revealed that its EBITDA would be $15 million to $20 million lower than expected in FY 2022. This is due to higher fuel and labour costs and one-off operational disruptions.

Corporate Travel Management Ltd (ASX: CTD)

The Corporate Travel Management share price is down 3% to $24.97. This follows the release of a trading update from the corporate travel specialist. Corporate Travel Management revealed that the Omicron variant impacted its recovery during the third quarter. And while management expects a big fourth quarter and for momentum to carry over into FY 2023, it hasn’t been enough to keep some investors from selling shares.

The post Why AGL, Booktopia, Cleanaway, and Corporate Travel Management shares are dropping appeared first on The Motley Fool Australia.

More reading

• Why is the Corporate Travel share price lagging the ASX 200 today?
• ASX 200 midday update: Woolworths’ Q3 update, AGL falls on Cannon-Brookes raid
• Own AGL shares? Here’s why the company’s demerger could be dead in the water
• Booktopia share price crashes 26% on earnings dive and shock CEO exit
• AGL share price in focus amid Cannon-Brookes raid

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 Booktopia Group Limited. The Motley Fool Australia has recommended Corporate Travel Management 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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S&P/ASX 200 Index (ASX: XJO) shares are looking for some direction today.

The index looked to be following the late afternoon rally in US markets yesterday (overnight Aussie time). That rally saw the US S&P 500 rebound from a loss of 1.3% to close 0.6% higher.

ASX 200 shares were down more than 0.4% in morning trade before edging into the green. At the time of writing, they’ve slipped again, down 0.45% in the wake of the RBA’s decision to raise interest rates by 0.25%.

That leaves the benchmark index down 3.7% so far in 2022. That’s significantly better than the 13.4% loss on the S&P 500, although the Aussie and US markets do tend to move in similar directions.

With that in mind, we turn to the bullish outlook for stock markets just out from JPMorgan Chase & Co.

Have investor fears set ASX 200 shares up for a rebound?

Like stocks in the US markets, ASX 200 shares have come under pressure this year on several fronts.

Among the bigger issues, investors are worried that China’s zero-COVID policies will put the brakes on the world’s second-biggest economy. Shanghai, a city with a population greater than Australia, has already been subjected to lengthy lockdowns, disrupting global supply chains. With the virus still spreading, Beijing could face a similar fate.

The second big fear that’s pressured ASX 200 shares and international stocks alike is the outlook for fast-rising interest rates. As the cost of money goes up, growth stocks have been particularly hard hit.

But according to analysts at JPMorgan, led by Marko Kolanovic, those fears look overblown. And the market looks primed for a rebound.

As Bloomberg reports, JPMorgan said the American Association of Individual Investors survey has plunged to the most bearish mark since March 2009.

If you were investing back then, you likely recall the big bounce in stocks that followed. A bounce that saw the S&P 500 gain 45% from 20 March 2009 through to the end of the year.

As for ASX 200 shares? They gained 41% over that same period.

Why negative investor sentiment could herald a market rebound

Noting that US economic growth “is being dented but not derailed” and is expected to pick up in the second half of the year, JPMorgan’s analysts said (quoted by Bloomberg):

Investor sentiment is reaching extreme weakness. This, in combination with light investor positioning and better-than-feared Q1 earnings, should allow the market to rebound…

Worries about China’s growth outlook, a negative take on the Q1 earnings reporting season, concerns about higher bond yields and further tightening of financial conditions from a strong dollar, all appear to have soured equity and credit investors’ sentiment. We find these fears overblown.

Here, JPMorgan was specifically analysing the S&P 500.

But as we noted above, where US markets go, ASX 200 shares tend to follow. And investor sentiment Down Under has certainly been hammered by many of the same factors.

The post Have investor fears set ASX 200 shares up for a rebound? appeared first on The Motley Fool Australia.

More reading

• Why AGL, Booktopia, Cleanaway, and Corporate Travel Management shares are dropping
• Imugene share price seesaws on ‘clarification announcement’
• Why Block, Domain, Metcash, and Zip shares are pushing higher
• Could Polynovo shares get kicked out of the ASX 200?
• Back in the green: Zip share price launches 6% on Tuesday

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 Imugene Limited (ASX: IMU) share price is moving in circles during Tuesday afternoon following an update from the company.

At the time of writing, the immuno-oncology company’s shares are down 1.58% to 18.7 cents.

It’s worth noting that Imugene shares have now lost more than 25% in the past week.

Imugene provides update on terminated supply contract

Investors are continuing to sell off Imugene shares despite the company’s clarification announcement made to the ASX today.

According to its release, Imugene advised that the terminated supply agreement by MSD is not a key factors regarding HER-Vaxx. This relates to the technology, clinical trial design, trial data, and the safety of the immunotherapy.

MSD is a tradename of pharmaceutical giant, Merck & Co.

Furthermore, management noted that the study will run as planned with alternate supply arrangements available to the company. This includes direct reimbursement of hospital pharmacies.

Subsequently, Imugene stated that there is no material difference to the cost of the trial as budgeted, or the agreement.

More on HER-Vaxx

HER-Vaxx is a B-cell immunotherapy that has been shown in studies to “stimulate a potent polyclonal antibody response to HER-2/neu, a well-known and validated cancer target.”

The immunotherapy is being developed for the treatment of gastric, breast, ovarian, lung and pancreatic cancers.

The primary objective of the upcoming clinical trial is to determine the safety and efficacy of HER-Vaxx in combination with anti-PD-1 therapy.

PD1-Vaxx advantage is that it induces a unique polyclonal immune response that may increase response rates for therapy.

Imugene share price snapshot

Adding to today’s fall, the Imugene share price is down 8% over the past 12 months.

However, when looking at year to date, its shares have lost half of their value.

Imugene shares reached an all-time high of 62.5 cents in November, before moving on a downhill trend.

Based on valuation metrics, Imugene has a market capitalisation of roughly $1.09 billion.

The post Imugene share price seesaws on ‘clarification announcement’ appeared first on The Motley Fool Australia.

More reading

• Here’s why the Imugene share price is plunging 15% today
• ASX 200 midday update: AMP asset sale talks, Syrah rockets
• ASX 200 healthcare shares were chronically ill last quarter. Take a look

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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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to record another decline. At the time of writing, the benchmark index is down 0.5% to 7,308.2 points.

Four ASX shares that are not letting that hold them back are listed below. Here’s why they are pushing higher:

Block Inc (ASX: SQ2)

The Block share price is up 5.5% to $149.94. This follows a similarly strong gain by the payments giant’s NYSE listed shares on Monday night. This was driven by a rebound in the tech sector following a meltdown on Friday night which sent the tech-focused Nasdaq index sinking 4% lower.

Domain Holdings Australia Ltd (ASX: DHG)

The Domain share price is up 2.5% to $3.50. Investors have been buying this property listings company’s shares after it released a trading update ahead of an investor conference appearance. That update revealed that digital revenue increased 25% during the third quarter and total revenue was up 24% for the quarter.

Metcash Limited (ASX: MTS)

The Metcash share price is up 1.5% to $4.83. This morning the wholesale distributor announced that it has entered into an agreement with Australian United Retailers to supply its national network of supermarkets and convenience stores for a further five-year period. Australian United Retailers’ network comprises more than 540 independently owned supermarkets and convenience stores.

Zip Co Ltd (ASX: ZIP)

The Zip share price is up 5% to $1.15. This is despite there being no news out of the buy now pay later provider today. In fact, the only real news relating to the company is a bearish broker note out of UBS. This morning the broker reiterated its sell rating and cut the price target on Zip’s shares down to a lowly 90 cents.

The post Why Block, Domain, Metcash, and Zip shares are pushing higher appeared first on The Motley Fool Australia.

More reading

• Back in the green: Zip share price launches 6% on Tuesday
• These were the worst performing ASX 200 shares in April
• April was a disastrous month for the Zip share price. Here’s why
• These are the 10 most shorted ASX shares
• Bank of America tips 38% upside for Block shares. Here’s why

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 positions in and has recommended Block, Inc. and ZIPCOLTD FPO. 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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What a time it has been for the Polynovo Ltd (ASX: PNV) share price lately. Polynovo shares are currently having a so-so day on the ASX boards today. The healthcare company is presently down 0.54% at 92 cents a share after earlier hitting an intraday high of 96.5 cents a share.

But zooming out, the picture looks a lot bleaker. This company is still down by a hefty 39.7% over 2022 alone. Since this time last year, the Polynovo share price has lost almost 70% of its value. And let’s not even discuss Polynovo’s all-time high near $4 a share that we saw back in December 2020.

Polynovo’s falls now put this company at a market capitalisation well under $1 billion. In fact, it is sitting at just over $608 million today. That puts Polynovo at serious risk of getting kicked out of the S&P/ASX 200 Index (ASX: XJO).

The ASX 200 is the flagship index of the Australian share market. But it only holds 200 of the largest ASX shares by market capitalisation. Thus, if Polynovo’s fortunes don’t improve significantly over the next month or so, the company could find itself well outside the ASX’s 200 largest companies and, thus, be excluded from the index when it is next rebalanced.

Could Polynovo shares be kicked out of the ASX 200?

This view was argued in a recent article in The Australian. According to the report, broker Wilsons is picking coal miner Coronado Global Resources Inc (ASX: CRN), lithium stock Core Lithium Ltd (ASX: CXO) and tech company Brainchip Holdings Ltd (ASX: BRN) as the next entrants into the ASX 200. That’s largely thanks to significant share price appreciation in recent months.

But if these ASX up-and-comers join the index, they will need to take the places of other ASX shares. Wilsons is, indeed, predicting that Polynovo could well be one of the losers, along with other shares like Tyro Payments Ltd (ASX: TYR) and Appen Ltd (ASX: APX).

Removal from an index like the ASX 200 has little effect on the company itself. However, it can result in share price selling pressure. Many ASX fund managers have mandates that dictate they can only hold ASX 200 shares. What’s more, any index funds that track the ASX 200 (of which there are many) would immediately sell out of a Polynovo position if the company was kicked out of the index. These two factors mean ASX 200 exclusion often results in selling pressure on a company’s share price.

Going off Polynovo’s recent share price performance, that’s probably the last thing investors need to hear right now. But such is ASX life.

The post Could Polynovo shares get kicked out of the ASX 200? appeared first on The Motley Fool Australia.

More reading

• RBA increases cash rate by 25bps and warns of more hikes
• ASX 200 midday update: Woolworths’ Q3 update, AGL falls on Cannon-Brookes raid
• These were the worst performing ASX 200 shares in April
• If you’d bought $10,000 of Bendigo Bank shares 10 years ago, guess how much you’d have now
• 5 things to watch on the ASX 200 on Tuesday

Motley Fool contributor Sebastian Bowen 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 Appen Ltd, POLYNOVO FPO, and Tyro Payments. The Motley Fool Australia has recommended Tyro Payments. 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 Zip Co Ltd (ASX: ZIP) share price is continuing to recover on Tuesday, gaining 5.91%.

There’s been no news to explain the lift.

Though, it’s worth noting the buy now, pay later (BNPL) stock struggled through April, recording a 26% slump for the month despite a last minute 8.9% boost on Friday.

At the time of writing, the Zip share price is $1.17. That’s 17% higher than the new 52-week low it struck last week.

For context, the S&P/ASX 200 Index (ASX: XJO) is slipping today. It’s currently down 0.1%.

Let’s take a look at what might be going on with the BNPL giant on Tuesday.

What’s going on with the Zip share price today?

The Zip share price is in the green once more today, bringing its gains for the last 3 sessions to nearly 16%.

The BNPL stock’s gains come as the ASX tech sector outperforms the broader market.

While Zip is technically a constituent of the financial sector, it tends to trade alongside the S&P/ASX 200 Information Technology Index (ASX: XIJ).

Right now, the ASX 200 tech sector is recording a 1.71% gain, with shares in Appen Ltd (ASX: APX), Block Inc (ASX: SQ2), and EML Payments Ltd (ASX: EML) leading the rise.

They’re currently up 6.45%, 5.62%, and 5.19% respectively.

The broader technology sector is also gaining. The S&P/ASX All Technology Index (ASX: XTX) is up 1.35% right now.

Unfortunately, today’s rise is barely putting a dent in Zip’s year to date losses.

The BNPL provider’s stock is still trading for 72% less than it was at the start of 2022. It’s also 84% lower than it was this time last year.

The post Back in the green: Zip share price launches 6% on Tuesday appeared first on The Motley Fool Australia.

More reading

• These were the worst performing ASX 200 shares in April
• April was a disastrous month for the Zip share price. Here’s why
• These are the 10 most shorted ASX shares
• TGIF: Why is the Zip share price rocketing 10% today?
• Zip share price finally rebounds with its first positive session in 5 days

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 Appen Ltd, Block, Inc., EML Payments, and ZIPCOLTD FPO. The Motley Fool Australia has positions in and has recommended Block, Inc. and EML Payments. 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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For the first time in 11 years, the Reserve Bank of Australia has raised the cash rate.

On Tuesday, the RBA governor Philip Lowe confirmed the official rate would increase from its historic low of 0.1% to 0.35% in a bid to slow down spending and put a brake on inflation.

So with real-life interest rates now heading upwards here and around the world, economic activity could slow down in the coming months.

Morgan Stanley head of wealth management research Alexandre Ventelon said investors need to be careful in the short term.

“Although the prospect of a recession is relatively low for the next 12 months, we believe the risks are rising on a 24+ month horizon,” he posted on Livewire.

For a global firm like Morgan Stanley, the ASX continues to be its “preferred equity market” as it has a better growth outlook than other regions.

The dominance of mining and financials and a Reserve Bank that’s less hawkish than other central banks are also factors.

Ventelon’s team recently released a memo to clients singling out two ASX shares they believe will thrive while the world deals with an economic downturn:

The telco that delivered on its promise

Ventelon noted that, after five years of falling earnings, Telstra Corporation Ltd (ASX: TLS) has now reversed that trend.

“The first half results delivered on the promise of a return to organic [earnings before interest, tax, depreciation and amortisation] EBITDA and [earnings per share] EPS growth,” he said.

“The company’s organic EBITDA grew +5.1% in 1HFY22 compared to the prior corresponding period.”

The drivers for this improvement were the conclusion of the NBN rollout, “significant” cost and workforce shrinkage, and a return to positive average revenue per user (ARPU) in the mobile business.

“Morgan Stanley’s base case assumption is for an ARPU increase of 2% per annum for the next three years to $52 per mobile in FY24E, although it may not reach its previous high watermark until the end of FY31.”

All this points to a bright future in a world which can’t really do without mobile and internet services, regardless of how the economy is going.

“Altogether, the return to positive EBITDA growth, mobile topline strength and higher margins boost confidence in the sustainability of Telstra’s dividend, which represents a yield of 4% with the potential to rise over time.”

Telstra shares have lost 5.5% of value this year but, over the past 12 months, the company’s share price has still gained a handsome 14.3%.

An even more secure bet in turbulent times

Similarly, the Morgan Stanley team likes the shares for Telstra’s counterpart over the Tasman Sea Spark New Zealand Ltd (ASX: SPK).

“The stock trades ~1x EV/EBITDA multiple point higher than Telstra, but offers a very secure dividend and higher yield than its counterpart.”

First-half results showed a “stronger than expected” 5% mobile ARPU growth and positive earnings growth.

The dividends are now world-class.

“The yield is the highest in Morgan Stanley’s Australia/NZ telecommunication coverage universe and equal to some of the major banks.”

Spark’s earnings outlook is “more secure” than Telstra, making for an even lower risk profile during an economic slowdown.

“In addition, there could potentially be dividend upside if the company is able to sell a portion of the mobile towers for an attractive price.”

The Spark share price is up more than 3.9% so far this year. It has gained in excess of 8% over the past 12 months.

The post Rates are up! Expert names 2 ASX shares for a global downturn appeared first on The Motley Fool Australia.

More reading

• The ASX 200 shares that fund managers are buying and dumping
• Here are the 3 most heavily traded ASX 200 shares on Monday
• Best ASX shares to buy in May 2022
• Analysts name 2 ASX dividend shares with great yields to buy now
• What’s dragging the Telstra share price lower today?

Motley Fool contributor Tony Yoo 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 Telstra Corporation 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) has taken a tumble this afternoon after the Reserve Bank of Australia (RBA) announced its first cash rate hike in years.

The benchmark index went from being broadly flat to down 0.5% within minutes of the RBA’s announcement.

What was announced?

At its May meeting, the central bank elected to lift the cash rate by 25 basis points to 35 basis points.

The RBA has also increased the interest rate on Exchange Settlement balances from zero to 25 basis points.

According to the statement by Governor Philip Lowe, the RBA decided that now was the time to take action after inflation picked up more quickly than expected.

Mr Lowe also revealed that there is evidence of wage growth picking up, which combined with very low interest rates, made it appropriate to start the process of normalising monetary conditions. He explained:

“The Board judged that now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic. The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected. There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”

What about future hikes?

Although the Reserve Bank expects inflation to eventually fall back to target levels once supply chain issues are resolved, it does expect higher inflation to remain in the short term.

In light of this, Governor Lowe has warned that it is likely to make further cash rate hikes. He said:

“The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead. The Board will continue to closely monitor the incoming information and evolving balance of risks as it determines the timing and extent of future interest rate increases.”

In addition, the central bank believes that some withdrawal of the extraordinary monetary support provided through the pandemic is appropriate. This will see the bank no longer reinvesting the proceeds of maturing government bonds.

Though, Mr Lowe confirmed that it is not currently planning to sell the government bonds that the bank purchased during the pandemic.

The post RBA increases cash rate by 25bps and warns of more hikes appeared first on The Motley Fool Australia.

More reading

• ASX 200 midday update: Woolworths’ Q3 update, AGL falls on Cannon-Brookes raid
• These were the worst performing ASX 200 shares in April
• If you’d bought $10,000 of Bendigo Bank shares 10 years ago, guess how much you’d have now
• 5 things to watch on the ASX 200 on Tuesday
• The CBA share price was the worst performer of the ASX 200 big banks in April. What happened?

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