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Australia’s annual inflation rate moderated to 6% in the June quarter from 7% in the March quarter.
The sharemarket rose on investor optimism interest rate increases may be coming to an end after Australian inflation slowed more than expected.
The benchmark S&P/NZX 50 Index advanced 0.2%, or 20.868 points, to 11,954.73 on Wednesday. On the broader market 76 stocks rose and 51 fell with $74 million shares traded.
Australia’s annual consumer price inflation (CPI) moderated to 6% in the June quarter from 7% in the March quarter. That’s below the 6.2% annual growth pencilled in by economists.
“The market has caught a bid post the Australia CPI figure which came in slightly below expectations,” said Hobson Wealth Partners investment adviser Brad Gordon.
Australia’s Reserve Bank will welcome the slowing pace of inflation, although prices are still growing much faster than its 2% to 3% target range.
The country’s central bank has been lifting rates since May 2022 to chase down fast-rising inflation and ensure it’s a temporary surge that doesn’t linger.
Oxford Economics Australia economist Sean Langcake noted the inflation result was below the RBA’s own forecasts for the June quarter.
“While there are still concerns around the labour cost outlook, we think these data will buy the RBA some more time and allow them to keep rates on hold a little longer,” he said.
Interest rates may also have peaked in New Zealand after the Reserve Bank Te Pūtea Matua increased the rate by 525 basis points to 5.5% since October 2021.
Reserve Bank of New Zealand
The path back to low inflation – Reserve Bank of New Zealand chief economist Paul Conway. (First published 23/03/23)
Investors are awaiting some key interest rate decisions due this week which could drive interest rates globally.
Both the Federal Reserve and the European Central Bank are expected to hike their benchmark rates by a quarter point while the Bank of Japan may remain on hold. The Federal Reserve decision is due out 6am Thursday New Zealand time, with the focus on whether the Fed sees the need for additional tightening.
In New Zealand, investors were intrigued to see insurer Pacific International Insurance declare a 5.8% stake in rival Tower, prompting speculation it may be ripe for takeover.
“It’s long been a sitting duck in terms of a potential takeover play for an industry player,” Gordon said.
He noted private equity firm Bain Capital had a 19.9% cornerstone shareholding in Tower which it may want to exit.
“That’s a key discussion point at the moment,” he said.
Gordon said Tower looked relatively cheap compared to other insurers, and had fixed its balance sheet following insurance claims after the Christchurch earthquakes.
“They are a nice little bolt on for anyone to gain exposure to New Zealand – a well run little growth business,” he said.
Last week, Tower downgraded its outlook for full-year earnings due to a “challenging” claims environment from cyclones, flooding and motor vehicles in New Zealand.
Tower shares advanced 0.8% to 62.5 cents, having dropped 9% so far this year.
The Carbon Fund, managed by Salt Investment Funds, was the biggest gainer on the market, with the units jumping 19% to $1.84. The units have shed 16% this year.
Salt Investment Funds said it welcomed the Government’s decision late Tuesday to adjust the Emissions Trading Scheme auction settings.
The changes will increase the auction price floor settings to $60 from the current level of $33.06, substantial lift the prices required to trigger the release of extra units, and reduce the volume of units on offer over coming years.
Rural supplies firm PGG Wrightson rose 3.5% to $4.20 after lifting its forecast for full-year earnings before interest, tax, depreciation and amortisation to $60m from $57m in the year to the end of June.
“Following the strong half-year result announced earlier in February this year, PGW has continued to see pleasing operational performance over the final quarter of the financial year,” the company’s acting chairperson U Kean Seng said in a statement.
– With AAP
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