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Note from the MD: Midweek madness: Inflation up, interest rates flat, and markets near record highs

August 4, 2021

Note from the MD: Midweek madness: Inflation up, interest rates flat, and markets near record highs

It may only be Wednesday but already it’s been a big news week for markets. 

It may only be Wednesday but already it’s been a big news week for markets. 

Yesterday the Reserve Bank stood its ground on interest rates, keeping the cash rate steady at 0.1% – a signal markets understood to mean they’ll probably stay low for some time to come.

Even so, the RBA announced that from September, it will cut its bond-buying program down to $4 billion a month from the previous $5 billion level, though it’s hard to see this having a significant impact on the broader economy.

The decision to keep interest rates flat was expected, but comes amid a period of heightened inflation both here and abroad. In the US, the Federal Reserve has already accelerated its rate hike timeline as consumer prices continue to climb.

Meanwhile the ASX 200 (ASX: XJO) touched record highs on Monday following the news US payments giant Square (helmed by none other than Twitter co-founder Jack Dorsey) is looking to acquire home-grown buy-now-pay-later pioneer Afterpay.

This morning the market opened slightly higher and is hovering around the 7500 level.

The market continues trading with some reversion around it’s post-COVID trend line, however it has been experiencing resistance around the 7500 level over the past 3 days which is below this trend line. 

If the market can push through and close above the 7500 level over the coming days, we could see a jump towards the trend line. 

Alternatively, we may see some new market behaviour, giving us an opportunity to re-evaluate trends, support and resistance levels. A sign of changed market behaviour would be a sustained break below the 50 day MA.

Yesterday saw the ASX Small Ordinaries index climb by a modest 0.26% – enough to see it climb to new heights, with a similar story playing out in the Emerging Companies Index too.

This renewed interest in the smaller end of the market may even point to a return of investors’ appetite for risk.

 As the rest of the week unfolds, all eyes will be on New South Wales’ COVID case numbers, which remain worryingly high – yesterday’s count was 233 new cases, with more than 40 of those believed active in the community while infectious.

Separately, the RBA is also due to release its Statement on Monetary Policy on Friday and this document could include revised forecasts for inflation, employment, and economic growth – its one not to miss.

Even with inflation hitting the highest levels since the GFC, US Federal Reserve Chair Jerome Powell is not in a rush to raise interest rates just yet. However, market experts believe that long-term inflation is on its way – raising the question on who will be the potential winners and losers from coming inflation trends. 

We have a session today at 1.30pm (AEST) and on Tuesday 10th August at 12pm (AEST) to talk about the impact of inflation and discuss a couple of investments that can benefit if inflation increases. Click here to book in.

 


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