ASX 200 afternoon report: April 20, 2023

The ASX 200 is trading flat after lunchtime today, continuing the quiet trading conditions seen during this week.

The local market appears tired after an impressive run higher from the March lows. With school holidays this week and an ANZAC holiday-shortened week next week, not even the release today of the highly anticipated RBA Review recommendations has sparked a reaction.

The key recommendations of the first RBA Review since the 1990s support a continuation of the 2-3% inflation target and fewer meetings followed by press conferences to explain the reasons behind its decisions.

The eight board meetings a year (from eleven) will mean less noise. The addition of six external board members, ideally with deeper connections to financial markets, will provide safeguards against future policy errors, including the RBA’s sadly misguided guarantee of no rate rises “until 2024 at the earliest.”

The guidance seems even more out of place considering the release of the RBA Board Meeting Minutes for April earlier this week, which confirmed that the RBA’s decision to pause its 350-basis point rate hiking cycle was a close call.

The hawkish tone in the minutes has the Australian interest rate currently pricing in a 25% chance of a 25bp rate hike to 3.85% at the next RBA Board meeting in May. Elsewhere similar considerations of more rate hikes weigh on traders’ minds, particularly after headline inflation in the UK inflation printed at 10.1% - above 10% for the seventh consecutive month.

Given that the outlook for monetary policy is pointing towards more rate hikes, not less it’s no surprise that the cyclical Materials sector has been the worst-performing sector today. Mineral Resources fell 5% to $80.08, Rio Tinto fell 2.82% to $119.72, BHP fell 2.36% to $46.14, and Fortescue fell 0.82% to $22.45.

The Energy sector has also fallen after the price of crude oil fell 2.35% overnight to $78.96 on concerns that higher interest rates will weigh on demand. Beach Energy fell 2% to $1.47, Woodside Energy fell 0.9% to $33.54, and Santos fell 0.9% to $7.06.

With bank dividend season looming next month, the financial sector is on track for its fourth week of gains led by the big banks. ANZ added 1.55% to $24.52, NAB added 1.52% to $29.05, Westpac added 1.35% to $22.53, and CBA added 1.36% to $100.72 after trading above $101 today for the first time since February.

Former BNPL poster child ZIP added 2.88% to $0.54c after it reported its March quarter revenues increased by 15% to $182.1 million. At the same time, some profit-taking drifted into the Lithium sector after its good run in recent week. Allkem fell 4.2% to $11.77, Pilbara Minerals fell 3.42% to $3.95, IGO fell 3.22% to $13.99, and Galan Lithium fell 2.6% to $1.13.

ASX 200 technical analysis

After holding support at 6900, the ASX 200 last week reached the 7350 target we first pinpointed on March 28 here. While we wouldn’t rule out further gains into month end, we aren’t interested in chasing the market higher here, mindful that May and June typically see a pullback in the vicinity of 3-5%.

ASx 200 daily chart

1. TradingView: the figures stated are as of April 20, 2023. 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.