AU Evening Wrap: ASX 200 Soars as August RBA Rate Hike Fades After June CPI Data

In the first half of the year, Rio Tinto's consolidated sales revenue rose by 1% to $26.8 billion, with underlying earnings also increasing by 1% to $5.8 billion, driven by disciplined investment and project progress. However, underlying earnings from its iron ore products dropped by 11% to $5.2 billion due to weakening iron ore prices amid growing supplies. The average price for 62% iron fines decreased by 3% compared to the previous year. Rio Tinto's Simandou iron ore project in Guinea advanced significantly, with an additional $400 million invested, bringing the total investment to $6.2 billion. Excluding Simandou expenses, the company spent $500 million on exploration and evaluation in the first half and forecasts around $1 billion for the full year.

Commonwealth Bank of Australia has surpassed BHP to become the country's most valuable company. As of midday Wednesday in Sydney, the bank's market capitalization reached a record A$229 billion ($149 billion), making up 9.6% of the S&P/ASX 200 Index, compared to BHP's weighting of less than 9%. This shift, which occurred on July 12, reflects investor preference for the bank over the world's largest miner.

Australia's CPI inflation rose to 3.8% in the June quarter, the first increase since late 2022, while core inflation dropped for the sixth consecutive time to 4.1%. Treasurer Jim Chalmers highlighted the persistent inflation issue and the need for faster moderation. The RBA will review these figures in its upcoming meeting, having not raised rates since November. The central bank aims to balance economic growth with a target inflation rate of 2-3% by the end of 2025.

Despite economic slowing and a jobless rate above 4%, job growth continues. Financial markets see a low chance (one-in-four) of an August rate hike, expecting a rate cut by June next year. The inflation data caused the Australian dollar to drop and the stock market to rise.

Economists suggest current rates are sufficiently restrictive, with a potential rate cut in November 2024 more likely than a hike. However, price pressures persist in sectors like fruit and vegetables, which saw a 6.3% price increase due to poor growing conditions.

Retail sales in Australia increased in June, driven by year-end sales that boosted consumer spending, according to data from the Australian Bureau of Statistics. Seasonally adjusted retail turnover grew by 0.5% in June, following a 0.6% rise in May. The increase was particularly notable in discretionary items such as furniture, electrical goods, and clothing. All industries saw growth except cafes, restaurants, and takeaway food services, which remained unchanged. Household goods retailing experienced the largest increase at 1.1%. Despite the monthly rise, retail sales volumes for the June quarter fell by 0.3%, following a 0.4% decline in the previous quarter.