RBA slows rate hikes, market surges in response, oil, materials lead the way

The local sharemarket delivered it’s best one day return since the worst of the pandemic, with the S&P/ASX200 gaining 2.6 per cent on Tuesday.

The move was driven by a slight shift in narrative and policy by the Reserve Bank of Australia, which decided to increase the cash rate by 25 rather than 50 basis points.

Once again ‘the market’ incorrectly priced the decision, which triggered significant flows into equities. This is an important distinction given that headlines tend to suggest the market is always right.

The RBA has clearly seen weakness in the local economy and is cognisant of the fact that wage growth remains well below that of the US, thereby seeing fit to slow their hiking cycle.

Each of the financials, materials, energy and property sectors gained more than 4 per cent for the session, with just one company, The Lottery Corporation (ASX:TLC) posting a negative result. 

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Among the biggest beneficiaries of the risk on rally was the lithium sector, with Lake Resources (ASX:LKE), Pilbara (ASX:PLS) and Core Lithium (ASX:CXO) gaining 14, 12 and 11 per cent respectively.

The energy sector was next in line, gaining 4.5 per cent after OPEC+ flagged a potential cut to production on concerns of the falling oil price.

The result was each of Woodside (ASX:WDS), Beach (ASX:BPT) and Santos (ASX:STO) all gaining at least 4 per cent.

Shares in tech company LiveTiles (ASX:LVT) gained more than 20 per cent after confirming it had received a takeover offer from Bigtincan (ASX:BTH) a software platform that distributes content.

Volatility and hopes of a flattening of bond yields has seen the gold price move beyond US$1,700 which combined with the AUD falling below $0.65 resulted in a 6.3 per cent gain for Newcrest (ASX:NCM).

The Australian one year bond yield fell a remarkable 36 basis points to 2.83 per cent with many now predicting the cash rate to peak at anywhere from 2.9 to 3.5 per cent, it currently sits at 2.6 per cent. 

RBA supports global markets, job openings fall heavily, mega cap tech jumps

The RBA’s decision reverberated around the world with Asian markets rallying on Tuesday on hopes that the rate hiking cycle may well be slowing.

It was a similar story in the US, where the Dow Jones gained 2.7 per cent, the S&P500 2.9 and the Nasdaq 3.2 per cent as bond yields slid heavily. Another Federal Reserve member suggested that inflation will quickly moderate back to 3 per cent.

The likes of Amazon (NYSE:AMZN) and Microsoft (NYSE:MSFT) were central to the rally gaining 4.7 and 3.4 per cent.

The number of job openings unexpectedly fell to 10.1 million in August, suggesting the jobs market may be weakening.

Shares in Twitter (NYSE:TWTR) gained over 10 per cent after Elon Musk offered another proposal to buy the company at the original price of $54.20. 

Drew Meredith

Drew is publisher of the Inside Network's mastheads and a principal adviser at Wattle Partners.