ASX 200 afternoon report: 6 August 2024

The ASX 200 trades 48 points (0.62%) higher at 7697 at 3.15pm AEST.

RBA statement highlights inflation concerns

Encouraged by a staggering 11.5% rebound in Japanese stock markets today, the ASX 200 has gained today despite the Reserve Bank of Australia (RBA) leaving the cash rate unchanged at 4.35% and retaining its strong hawkish bias.

In the accompanying statement, the RBA noted that while inflation is easing, it is still well above the midpoint of the RBA's 2-3% target range. Adding to the cautionary note, the RBA highlighted that quarterly underlying inflation has been above the midpoint of the target for 11 consecutive quarters and "has fallen very little over the past year."

The persistence of service price inflation was highlighted as an upside risk to inflation while noting that growth in Australia was slowing and that many businesses "are under pressure."

Impact of global market volatility

In a hat-tip to the recent upsurge in volatility in global markets, the RBA said, "Globally, financial markets have been volatile of late, and the Australian dollar has depreciated. Geopolitical uncertainties remain elevated, which may have implications for supply chains."

RBA revises inflation and unemployment forecasts

As also expected, the RBA revised its year-end forecast for trimmed mean inflation to 3.5% from 3.4% prior and the unemployment rate higher to 4.3% from 4.2%.

The RBA retained the sentence that the Board wasn't "ruling anything in or out." It also retained the sentence at the end of the statement that "the Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome."

Hawkish hold

The RBA's decision today amounts to a hawkish hold. Despite other central banks already moving to ease monetary policy, the RBA still requires more evidence that inflation is returning to target before opening the door to rate cuts.

Before the RBA's 2.30pm announcement, the rates market was pricing in 22 basis points (bp) of RBA rate cuts in November and a cumulative total of 33 bp before year-end. This has eased to 18 bp and 28 bp, respectively, reflecting the RBA's unwavering hawkish bias.

ASX 200 technical analysis

The rejection from last Thursday's 8148 high left a weekly "loss of momentum" candle, like the one that warned of the recent pullback on Wall Street. Additionally, it occurred from the top of a weekly trend channel, which has contained the market for the better part of 22 months.

The ASX 200 has a critical layer of support in the 7600/7500 area, which includes the 200-day moving average at 7570 and the April 7492 low. This provides a good level for investors to lean against if looking to add to longs, leaving room to add towards the lower bound of the weekly trend channel at 7000.

ASX 200 daily chart

• _{Source: TradingView. The figures stated are as of 6 August 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}