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ASX 200 morning report – Interest rate rise hits Aussie share market

The first interest rate hike in Australia in 11-and-a-half years took centre stage on the Australian markets on Tuesday.

The Reserve Bank of Australia (RBA) lifted the cash rate by 25 basis points, or 0.25 percentage points, taking it to 0.35%, and signalled that more rate rises were ahead, as the central bank seeks to dampen inflation.

The RBA sees inflation at 6% by the end of year, and it doesn’t see it slowing down until 2024. In response, the yield on the three-year Australian bond rose above 3% for the first time since 2014.

Market reaction was muted, with the rate rise largely expected. The S&P/ASX 200 (ASX: XJO) slid 0.4% while the broader S&P/All Ordinaries Index (ASX: XAO) retreated 0.5%.

Higher rates are generally viewed as a positive for the banks, as it directly flows into increased profits. However, the big four did not exactly jump for joy, with Westpac Banking Corp (ASX: WBC) up 2% to $23.90, and the others closing lower, but up from their lows.

ASX winners

Winners were hard to find on the day, but embattled funds manager Magellan Financial Group Ltd (ASX: MFG) added 5% to finish at $17.11, but is still down 10% year-to-date.

While low rates are not considered favourable for growth stocks, BNPL (buy now, pay later) players Zip Co Ltd (ASX: Z1P) and Block Inc CDI (ASX: SQ2) both had a good day, with Zip up 5% to $1.16, and Block closing at $6.47, or 4.6% higher.

Going somewhat against the accepted wisdom that rate rises are bad for growth stocks, tech heavyweight Appen Ltd (ASX: APX) gained 4.6% to $6.65, while diagnostic imaging company Pro Medicus Limited (ASX: PME) added 3.3% to $45.21, regaining some of Monday’s 8.2% loss.

Mike Cannon-Brookes tries to block AGL split

AGL Energy Limited (ASX: AGL) was down 3.1% after acknowledging that its largest shareholder, billionaire Atlassian co-founder Mike Cannon-Brookes, intends to vote his 11.3% holding in the company against its planned demerger.

AGL’s board said it remained committed to splitting up the company, which Cannon-Brookes argues is bad for both shareholders and the environment.

Booktopia share price crunched

One of the eye-catching losses on the day was online bookseller Booktopia Group Ltd (ASX: BKG), which sank 28% to an all-time low of 45 cents (it peaked at $2.99 last August) after announcing that profit for the nine months to March 31 was down 63% to $5.5 million, as COVID lockdowns ended, and that co-founder and chief executive Tony Nash would be leaving. Booktopia said it would implement several cost-cutting initiatives in the fourth quarter to cope with lower revenue growth rates.

GrainCorp continues to rise, CSL’s plasma collections recover

On the flipside, GrainCorp Ltd (ASX: GNC) closed 9 cents higher at a record of $10.50, up 0.9%, taking its gain for 2022 to 27% on the year, after lifting its guidance in April.

The company is benefiting from the Ukraine war, which is driving strong and ongoing global demand for Australian grain and oilseeds as the northern hemisphere faces supply shortages.

Meanwhile, CSL Limited (ASX: CSL) gained $2.42, or 0.9%, to $272.87 after reporting that blood plasma collections were now back around pre-COVID-19 levels, and that it expects gross margins to return to pre-COVID-19 levels over time.

Now, over to the Fed

Interest rates were also in focus in the US, ahead of a widely anticipated Federal Reserve decision on Wednesday. Wall Street is largely expecting the central bank to lift rates by 50 basis points (0.5%) this week, the first of several interest rate hikes it’s expected to implement this year to control soaring inflation.

Many investors believe expectations of aggressive monetary tightening from the central bank are already priced into markets.

The S&P 500 Index rose 0.5% overnight, the Dow Jones Industrial Average gained 0.2% and the tech-heavy Nasdaq Composite added 0.2%.

Stocks are recovering from a hammering in recent weeks. April was the worst month since March 2020 for the Dow and S&P 500, and the worst month for the Nasdaq since 2008.

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