RBA Delivers Fifth Rate Rise as ASX Rebounds, but Global Technology Weakness Raises New Questions

The Australian sharemarket recovered on Tuesday, 3 November, with the S&P/ASX 200 closing at 8,886.8 points, up 30.3 points or 0.34%. The index traded between 8,843.3 and 8,909.1, recovering from Monday's 0.58% decline as markets absorbed the Reserve Bank's latest interest rate decision.

The modest advance was notable given weakness across several Asian technology markets and continued pressure on energy stocks. AMP was among the weakest performers, falling sharply, while coal producers Yancoal Australia (ASX: YAL), New Hope Corporation (ASX: NHC) and Whitehaven Coal (ASX: WHC), alongside Woodside Energy Group (ASX: WDS), faced selling pressure following the previous session's oil price decline.

The broader market reaction suggests that expectations of another rate increase were already reflected in valuations. However, the recovery should not be interpreted as an all-clear signal, particularly for businesses exposed to higher borrowing costs and weaker household spending.

The Australian dollar, bonds and the RBA

The Reserve Bank raised its official cash rate by 25 basis points to 4.85%, the highest level since December 2008. This was the fifth increase in 2026, taking cumulative tightening to 125 basis points.

The decision was split six votes to three, with three board members preferring to leave rates unchanged. Importantly, the Bank removed its previous explicit reference to potentially increasing rates further, suggesting policymakers are becoming more conscious of the economic consequences of tighter monetary conditions.

Inflation remains the central concern. September's annual CPI increased to 4.3%, up from 4.0% in August, while annual trimmed mean inflation rose to 3.6%. The RBA now expects headline inflation to reach 4.5% in the December quarter before gradually returning to its 2–3% target range during the second half of 2027.

The Australian dollar weakened following the announcement, reaching US69.74 cents before recovering to approximately US69.76 cents at 4pm AEDT. Australia's two-year government bond yield traded around 4.97%, reflecting continuing concerns about domestic inflation and monetary policy.

For equities, the implications are mixed. Banks may benefit from higher lending rates, although deposit costs and deteriorating credit quality remain important considerations. Retailers, property businesses and highly leveraged companies face a more challenging operating environment.

Global markets: China, Asia and Europe

Asian markets remained under pressure on Tuesday as technology weakness continued to spread beyond the United States. South Korea's Kospi declined approximately 2.5%, while Taiwan's Taiex fell 0.9%. Hong Kong's Hang Seng gained around 0.3%, while Shanghai declined approximately 0.7%. Japan was closed for a public holiday.

China introduced another monetary measure, increasing the foreign exchange reserve requirement for financial institutions from 4% to 6%, effective 15 November. The move is designed to tighten offshore dollar liquidity and moderate movements in the yuan.

For Australian resources companies, the bigger question remains whether Chinese industrial demand can recover sufficiently to support commodity prices. Policy support may stabilise financial markets, but evidence of stronger property activity, manufacturing demand and construction remains essential.

European markets were also monitoring the implications of weaker technology sentiment, energy price volatility and upcoming central bank decisions.

Wall Street: US stocks and the Federal Reserve

Wall Street finished Monday's session mixed, with technology weakness offsetting gains elsewhere. The S&P 500 declined 0.51% to 7,541.40, while the Nasdaq Composite dropped 1.07% to 25,164.32. The Dow Jones Industrial Average gained 0.41% to 51,983.98, while the Russell 2000 slipped 0.21% to 2,805.88.

The most important development was the inability of technology shares to sustain an early recovery. The S&P 500 initially gained as much as 1.1% before reversing, highlighting growing sensitivity to valuations and the enormous capital expenditure commitments associated with artificial intelligence infrastructure.

Apple also attracted attention after signalling weaker gross margin expectations for the holiday quarter and services revenue growth below market expectations. These developments reinforce the importance of assessing whether substantial technology investment is translating into sustainable earnings growth.

US Treasury yields stood around 4.59% for two-year securities and 4.91% for 10-year securities on Monday. Markets are also preparing for the US midterm elections, which could influence expectations around fiscal policy, trade and government spending.

Commodities: gold, oil and industrial metals

Oil experienced a sharp reversal. Brent crude futures fell 7.63% on Monday to US$104.77 a barrel, while West Texas Intermediate declined 7.36% to US$96.46. However, reports of renewed US military action against Iran subsequently lifted prices, with Brent recovering towards US$105 a barrel during Tuesday's Asian trading.

Gold futures traded around US$3,932 an ounce at approximately 12pm Bangkok time, down around 0.94% on the session. Copper futures also weakened, trading near US$6.43 a pound, reflecting broader caution across industrial metals.

The conflicting commodity signals matter for Australia. Lower oil prices could ease inflationary pressures and support household purchasing power, but renewed geopolitical tensions could quickly reverse that benefit. Meanwhile, weaker industrial metal prices would create additional challenges for producers already exposed to uncertain Chinese demand.

What to watch next

The immediate focus shifts to the US midterm elections, further developments in the Middle East and China's upcoming services activity data. The RBA's updated economic assessment will also deserve attention, particularly its projections for inflation, unemployment and economic growth.

We believe the market is entering a more selective phase. The ASX has shown resilience despite global technology weakness, but Australia's higher interest rates create a difficult backdrop for businesses dependent on consumer confidence and inexpensive financing.

The key opportunity remains identifying companies with sustainable earnings growth, strong cash generation and manageable balance sheets. The main risk is that inflation remains elevated while economic growth slows, creating a more difficult environment for both corporate earnings and equity valuations.