Asia report: Markets mixed after surprise rate hike from Australia

Stock markets in the Asia-Pacific region were mixed on Tuesday, as Australia’s central bank shocked markets with an unexpected increase in interest rates.

Traders in mainland China were meanwhile still on holiday, for the second day of the three-day national break for Labour Day.

“Most major money centres have reopened after May day public holidays,” said TickMill analyst Patrick Munnelly.

“Wall Street traded in a tight range given the lower overall volumes, and Asian equity markets are mixed as investors are positioning for a slew of central bank meetings for the week ahead.

“Overnight, the Reserve Bank of Australia got the central bank ball rolling by making a surprise 25-basis point move, raising the headline rate to 3.85% - the bank also suggested that further hikes remain on the table for future meetings.”

Markets turn in mixed performance across Asia

Japan's Nikkei 225 was up 0.12% at 29,157.95, while the broader Topix fell by 0.12% to 2,075.53.

The gains on Tokyo’s benchmark were supported by Mitsui Engineering & Shipbuilding, which rose by 4.05%, Advantest Corporation, which gained 3.53%, and Panasonic, which increased by 2.42%.

In Hong Kong, the Hang Seng Index rose by 0.2% to 19,933.81, driven by gains in ENN Energy, which rose by 4.95%, HSBC Holdings, which increased by 4.45%, and Galaxy Entertainment Group, which gained 2.16%.

South Korea's Kospi rose by 0.91% to 2,524.39, led by gains in Hotel Shilla, which rose by 7.12%, HYBE, which increased by 5.37%, and Posco Chemical, which gained 5.22%.

Australia's S&P/ASX 200 fell by 0.92% to 7,267.40, following the Reserve Bank’s surprise rate hike.

The biggest losers in Sydney were Computershare, which fell by 4.79%, Mirvac Group, which dropped 4.2%, and Infratil, which decreased by 3.94%.

New Zealand's S&P/NZX 50 rose by 0.29% to 12,037.81, with Serko leading the gains, rising by 5.19%, followed by Fonterra Shareholders Fund, which gained 3.48%, and Freightways, which increased by 3.34%.

In currency markets, the yen was last 0.05% stronger on the dollar at JPY 137.43, while the Aussie advanced 0.84% to AUD 1.4955, and the Kiwi was ahead 0.37% on the greenback to change hands at NZD 1.6156.

Oil prices were in the red, with Brent crude futures last falling 0.42% on ICE to $78.98 per barrel, and the NYMEX quote for West Texas Intermediate dropping 0.52% to $75.27.

RBA surprises markets with hike after pausing in April

In economic news, the Reserve Bank of Australia surprised economists by raising its cash rate by 25-basis points to 3.85%, with policymakers saying inflation remained too high.

While economists polled by Reuters were expecting the central bank to keep its benchmark rate steady at 3.6%, the RBA said its priority was to return inflation to target, leaving the possibility of more hikes on the table.

“It was always a good bet that the RBA would raise again despite the pause in April,” quipped Neil Wilson, chief market analyst at Finalto.

“What maybe did come as a surprise with the hawkish talk, with the RBA saying that ‘some further tightening’ may be required to ensure that inflation returns to target in a ‘reasonable timeframe’.

“Markets now price in a better-than-evens chance the Reserve Bank goes for another 25-basis points by August.”

Elsewhere, Hong Kong's economy recorded 2.7% growth in the first quarter according to the special administrative region’s chief executive John Lee.

That was a marked improvement from the 4.2% contraction printed in the final quarter of 2022.

South Korea's inflation softened to 3.7% in April, making for the slowest pace of inflation in 14 months and the third consecutive month of decline.

The country's manufacturing purchasing managers index (PMI) for April meanwhile rose to 48.1, which was still the 10th month it remained below the 50-point neutral level despite the improvement.

“The Bank of Korea is likely to see the April PMI readings as confirming the gloomy outlook for the Korean economy, and so keep its policy rate unchanged for the rest of the year,” said Duncan Wrigley at Pantheon Macroeconomics.

“The Korean economy is more open than Japan’s and hence more exposed to the likely slowdown in global demand in the first half.”

Wrigley said Korean exports to the United states dropped 4.4% year-on-year in April - only the second month of decline since September 2020 - in a sign of cooling demand.

“The recent international banking crises have increased the likelihood of a credit crunch in the US, while China’s recovery is only gradually building momentum.”

Reporting by Josh White for Sharecast.com.