AU Q1 CPI preview and what next for the ASX200

Tomorrow morning sees the release of March quarter Australian inflation data. It will likely be remembered as the final data point to confirm the end of an era of ultra-low interest rates in Australia and set the scene for an RBA interest rate hike as early as next month. 

After a 1.3% in the final three months of 2021, tomorrow’s number is expected to show headline CPI rose by 1.7%qoq or 4.6%yoy for the March quarter.

The RBA’s preferred measure of inflation, the trimmed mean, is expected to increase by 1.2%qoq or 3.4%yoy, taking core inflation above the RBA’s 2-3% target band for the first time since 2010.

The acceleration will be driven by higher transportation, fuel and food prices due to the floods in NSW and QLD. As well as supply bottlenecks and rising labour costs. The RBA meeting in June is now almost fully priced for a 40bp rate hike and almost 240 bp of rate hikes by year-end.

Given the expectation of aggressive RBA rate hikes, it was no surprise to see the interest rate sensitive, IT sector led the ASX200 0.7% lower last week to close at 7473 after it again tested and rejected its all-time 7632 high.

After a wild ride on Wall Street over our Anzac Day long weekend, the ASX200 is trading about 131 points or 1.76% lower this afternoon at 7342, after falling briefly below 7300 earlier in the session.

While the ASX200 remains below resistance at 7630/00 and ahead of the seasonally weaker month of May, which includes the Federal Election and possibly wider and deeper lockdowns in China which will impact energy and commodity prices, we will hold a neutral bias.

Aware that should the ASX200 lose support at 7345/25 on a two day closing basis (coming from the 200-day moving average at 7346 and previous highs), it would warn a deeper pullback is underway.

Source Tradingview. The figures stated are as of April 26th 2022. 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

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