Finance Market Wrap: Higher-than-expected rate rise, big banks bashed and oil price surge fuel mixed markets

Market Wrap: Higher-than-expected rate rise, big banks bashed and oil price surge fuel mixed markets

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We’ve had a choppy, sideways week for US stock markets ahead of the release of the country’s all-important inflation data this week, and despite a second profit warning in three weeks from giant retailer Target.

The Australian stock market’s ASX200, meanwhile, was crunched, falling over 2.6 per cent back towards 7000 points on fears of a more aggressive Reserve Bank of Australia (RBA) rate hike cycling into slowing growth and sentiment.

Here is a review of the top five things that affected the markets this week:

1. RBA goes big

The RBA surprised the market and raised its official cash rate by a supersized 50 basis points from 0.35 per cent to 0.85 per cent.

It was the RBA’s first 50 basis point hike since February 2000 and marks the start of a more aggressive rate hiking cycle targeting above forecast, and still accelerating, inflation.

2. Australian consumer confidence 

Australian consumer confidence fell to its lowest level since mid-August 2020 as rising living costs, and the prospect of accelerated interest rate rises, took a toll on sentiment.

The decline in consumer sentiment is set to deepen next week after a deluge of negative reports this week around higher gas and electricity bills, softening housing prices, and higher mortgage repayments

3. Big banks belted

The ASX200 Financial Sector fell over 8 per cent this week, its largest decline since the onset of the pandemic when it fell 45 per cent in just five weeks.

The catalyst for the sell-off concerns that a more aggressive RBA rate hiking cycle and higher interest rates will lead to higher funding costs, a decline in house prices that account for 55 per cent of banks’ assets and impact the quality of loan books.    

4. Multi-decade highs for USDJPY

The USDJPY, the foreign exchange between the US dollar and the Japanese Yen, surged to its highest point in decades, with the dollar trading above 134 yen for the first time since 2002.

The rally was supported by the release of resilient US economic data last week, as well as further turmoil in energy markets as crude oil traded above $122 per barrel.

The link between the crude oil price and USDJPY is that Japan is a net energy importer. The higher energy prices rise, the more US dollars Japan needs to purchase to pay for its energy imports.

5. Crude oil rips higher again 

Crude oil traded above $122 per barrel on supply concerns and increased demand coming from the re-opening in China and the start of the driving season in the US.

After consolidating its breakout of the top of the $115-$95 type range, the next leg higher has commenced, targeting the $130.50 high of March and beyond.

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