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Inflation data boosts yields, AUD, sinks ASX

inflation written in chalk on a board

The S&P/ASX 200 closed sharply lower on Tuesday, dropping 177.90 points, or 2.5%, to 6961.60, and hitting an intraday low of 6920.70 after inflation data put pressure on the Reserve Bank of Australia to raise interest rates.

Australia's Q4 CPI data beat estimates, with headline CPI up 1.3% Q/Q and 3.5% Y/Y vs 1% and 3.2% expected. Trimmed mean CPI rose 1% Q/Q and 2.6% Y/Y vs 0.7% and 2.3% expected. Weighted median CPI rose 0.9% Q/Q and 2.7% Y/Y vs 0.7% and 2.3% expected.

The 3-year bond yield rose 9bps to an almost 3-year high of 1.44%. The 10-year yield rose 4bps to 1.975%, while AUD/USD spiked from 0.7150 to 0.7175, although the AUD is currently around 0.7139c.

The RBA holds its monthly policy meeting on Tuesday. Interbank futures are now fully priced for a 15-basis point cash rate lift-off in May with a small chance of a move by April.

Zip Co confirmed it is in takeover talks with Sezzle "in relation to a potential acquisition". The discussions are preliminary in nature, Zip said in a statement to the ASX.

"The Zip board remains committed to ensuring any transaction delivers value to shareholders and will always be disciplined in its assessment of potential opportunities."

"Zip will keep the market updated in accordance with its continuous disclosure obligations."

Sezzle released its own statement to the ASX, confirming preliminary discussions centred on a "possible merger".

Rio Tinto, Turquoise Hill Resources and the Mongolian government have reached an agreement that will move the Oyu Tolgoi copper project forward, allowing the commencement of underground operations in the coming days. This step unlocks the most valuable part of the mine, with first sustainable production expected in the first half of 2023, according to a statement from Rio Tinto.

US markets

After diving by 1000 points, the Dow Jones Industrial Average closed up by 0.3%, along with the S&P 500 after both fell by over 3% at one stage. The tech-heavy Nasdaq edged up by 0.6% by the close. US futures are falling, indicating losses at the open on markets there.

The current slide in the stock markets is considered unlikely to scare Fed officials enough to deviate from their current policy track, according to CNBC. Both Goldman Sachs and Bank of America have said in recent days that they see the US Federal Reserve continuing to tighten to address inflation pressures. Stocks sold off aggressively again Monday, with rate-sensitive shares getting the worst of it. The Fed meets Tuesday and Wednesday (announcement expected Thursday morning AEDT) and is expected to tee up rate increases ahead.

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