OPEC snubs Biden

Global oil cartel OPEC agreed to cut oil production on Thursday. The cut had the desired impact and caused oil prices to jump. The organisation decided to cut oil output by 2 million barrels a day which is the equivalent to 2% of the global oil supply. The decision has caused global political riffs after the America president Joe Biden’s attempts at repairing the relationship between Saudi Arabia and the US. The US and Europe have been focused on lowering oil prices to restrict the amount of revenue earned by Russia after the invasion of Ukraine. Following the decision brent crude jumped 1.9% up to $US93.54 per barrel whilst West Texas crude increased 1.6% to $US87.87 per barrel.

RBA lifts rates

On Tuesday, the RBA announced their decision to lift the cash rate by 25 basis points. The decision came as a surprise to the market with 79% of economists expecting a hike of 50 basis points. In his announcement Governor Philip Lowe acknowledged that the cash rate had moved quickly since the hikes began back in May. REA economist Paul Ryan believes the board’s decision to slow the pace of rate hikes is an indication that the RBA is close to its cash rate end goal. “I think they’re signalling that as they get closer to where they think the cash rate should be to balance the economy based on current demand and supply, it was prudent for them to use a smaller step,” he says.

If you are interested in the impact on borrowers, you can read my article ‘So, the RBA didn’t hike by 50 basis points. What now?’

Bank stocks jump

Share prices at Australia’s major banks jumped on Tuesday following the RBA’s decision to lift the cash rate by a further 25 basis points. Morningstar equity analyst Nathan Zaia believes that the RBA’s change in pace lowers the probability of mortgage defaults increasing. Many investors interpreted this as a sign that margins will widen. “Increasing [interest rates] gradually gives people time to reassess their living expenses, to get wage increases and in the worst-case situations you can even sell your home, downsize, you can become a renter. So, you can take steps to remedy your situation before you default,” he says. All four of the big banks have passed on the 0.25% increase in the cash rate onto borrowers, coming into effect within the next two weeks. ANZ, CBA, NAB and Westpac all ended the week, up between 4.6% and 6.5%.

Andrew Forrest focuses on the trees

Iron ore miner Fortescue Metal announced on Thursday that Fortescue Future Industries (FFI) entered a collaboration with energy infrastructure developer Tree Energy Solutions (TES) to develop a green hydrogen and import faciality in Germany. The miner will be investing $195 million into TES’s hydrogen import terminal project. FII is a global green energy company owned by Fortescue Metals which is committed to ‘producing green hydrogen, containing zero carbon, from 100 per cent renewable sources.’ Fortescue executive chairman, Andrew Forrest backed the investment and reaffirmed the importance of developing reliable green solutions on a global scale. “The United Kingdom and Europe urgently need green solutions to replace fossil fuels and this investment will enable Europe to do exactly that,” he said.

New Morningstar video series!

In our new series starting next week, we put your investing questions to our analysts. Whether it is about stocks, personal finance or the recent market events, our specialists are here to provide you with their insights.

Have a question on your mind? Shoot us an email at editorialAU@morningstar.com.

You can check out the trailer for the new series below.

 

What we are watching:

  • Monday: Westpac consumer confidence index
  • Tuesday: NAB business confidence, US consumer inflation expectations
  • Wednesday: Great Britain GDP YOY, Bank of England Pill Speech
  • Thursday: Australian consumer inflation expectations, US inflation data
  • Friday: US retail sales data

One good read:

Why investors should hate OPEC’s oil production cut