ASX rebounds after inflation shock

The Australian share market fell only slightly on Thursday despite the hangover from this week’s shock inflation numbers continues to play out.

The benchmark ASX200 dropped 23.4 points, or 0.3 per cent, to close at 7,759.6 points.

The broader All Ordinaries index 20.1 points, or 0.25 per cent, to finish at 8002.8.

Seven of 11 sectors ended in the red with property fairing the worst, dipping 2.3 per cent.

ASX rebounds after inflation shock

Interest rate sensitive financials stocks also lost 0.5 per cent at the close.

The bottom performing stocks at the close were Judo Capital Holdings Ltd and GPT Group, which fell 6.72 per cent and 5.87 per cent respectively.

IG analyst Tony Sycamore said Wednesday’s surprising revelation that monthly consumer price index had jumped from 3.6 per cent to 4 per cent in the year to May continue to be felt by the stock market.

“The fallout from yesterday’s red-hot inflation numbers has rocked the local market for a second day,” Mr Sycamore said.

“The RBA has continually voiced its unease over high inflation and put the market on notice in Mid-June when it noted that the Board discussed the option to hike rates but not the option to cut rates.

“The return of the comment that the RBA will do ‘what is necessary’ to return inflation to target was viewed as an additional hawkish development.

“Yesterday’s rise in the RBA’s preferred measure of inflation, the Trimmed mean, to 4.4 per cent in May puts it on track to comfortably beat the RBA’s own forecast of 3.8 per cent (year on year) for June.

“This means it will likely take a significant and unlikely downside surprise in June inflation data to prevent the RBA from delivering a fourteenth-rate hike to 4.60 per cent before year end.”

Bank of Queensland’s chief economist Peter Munckton agreed, stating the all eyes will be watching what happens with the next CPI announcement.

“A key driver of weak real household disposable income has been higher inflation and the related factor of higher interest rates,” Mr Munckton said.

“The higher-than-expected May CPI outcome was the second consecutive poor monthly inflation read.

“The monthly CPI data is not as comprehensive as the quarterly figures. And the monthly outcomes haven’t always mapped well to the quarterly outcomes.

“But if the June quarter CPI numbers are consistent with the April-May monthly readings, the RBA will likely hike rates at their next meeting (on August 6) particularly given the tone of their recent commentary.

“That makes the probability of a move at the next meeting a 50-50 proposition.”

The Aussie dollar was trading at US66.8c at 4.15pm.