Spiking oil prices add pressure on RBA to hike interest rates
The global oil benchmark Brent crude is now trading almost 40% higher than when the Iran war began in late February. Brent futures jumped 7.0% to settle at $US100.69 a barrel.The energy sector was among the strongest performers on the Australian share market on Friday, up 0.9% by the close of trade. But materials fell 2.4%. The All Ords dropped 0.9% to 8,942 and the ASX 200 fell 0.8% to 8,772. As oil prices climb, inflation worries grow. Equities are being sold off and bond yields are rising globally as investors bet the chance of interest rate rises are increasing. Financial markets are pricing in a 38 per cent chance rates will rise at the Reserve Bank’s August 11 meeting. Key to that decision will be the second quarter inflation data from the ABS, which is released on Wednesday. Senior investment strategist at BetaShares, Cameron Gleeson, says “we sort of expect the pass through to inflation increases the likelihood that the RBA may increase rates potentially as soon as August.”
The fear of rising rates in Australia and the US has been compounded by doubts over whether the billions of US dollars being spent on artificial intelligence, will deliver returns. Cameron Gleeson says the worries were highlighted by Alphabet’s results this week. “Again they’ve increased their expected spend of AI this year. And for the first time, this company is going to be in a negative free cash flow position. Traditionally, we’ve thought of cloud hyperscalers as companies that produce great free cash flows.” He said.
He says next week more big name AI companies like Meta and Microsoft will release their earnings numbers and that will help cement the view of investors about how the current rates of investment are tracking.
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