The lowdown: The local bourse managed to claw its way back into the green after a rocky morning triggered by ongoing backlash from aggressive interest rate rises in the UK and US and a dwindling local dollar.

Following the US Federal Reserve’s meeting this week, the Bank of England on Thursday announced its biggest interest rate increase in three decades. The rise was the bank’s eighth in a row and the biggest since 1989. Higher rates not only slow the economy by discouraging borrowing, they also make stocks look less appealing compared with lower-risk assets such as bonds and CDs.

Senior investment adviser at Novus Capital Gary Glover said even though inflation was weighing heavily on global markets, and ongoing rate rises were inflicting short-term pain, there were still pockets of value within the bourse that keep it afloat.

“It’s a stock-pickers’ market. You’ve just got to get your sectors right,” said Glover. “If energy wasn’t flying, the market would be a lot lower… If you look through some of the top 100 names, even top 200 names, there’s been some pretty large corrections in the market. So, there’s actually some value here.”

Despite rates increasing across the globe, Glover said it was a necessary to ease inflation – a longer-term goal that would far outweigh the temporary pain of high interest rates. This future-thinking was likely adopted by ASX investors. Alongside a “bounce-back from the October lows”, Glover said traders seemed to be following past trends where high inflation triggered greater investment in value shares (such as major banks) rather than growth stocks (such as tech shares).

“A lot of the noise is negative, but the data is still pretty positive,” he said. “You can still get a job, you can get two jobs if you want. I think the Australian economy is still reasonably robust.”

But Glover warned that as long as inflation remained high, investors would need to become accustomed to a volatile market where frequent swings in value were common.

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ANZ Pacific Economist Kishti Sen said much of the aggressive front-loading of rate increases by central banks was likely complete. However, the data on inflation, wages, and the broader labour market were “not indicating that a pause in the tightening cycle is on the horizon any time soon”. He anticipated that the Fed funds rates’ peak, forecast at 5 per cent, would be reached by next year’s first quarter.

Meanwhile, the RBA released its quarterly statement of monetary policy, stating it expected CPI inflation to peak at about 8 per cent in the December quarter, largely due to soaring energy costs. This was paired with downwards revisions to growth forecasts to 1.5 per cent over the next 2 years.

Trimmed mean was expected to peak at 6.5 per cent in December this year, a 0.5 per cent increase over three months. It was forecast to fall to 3.75 per cent in December next year. Additionally, wages were expected to grow by about 3.9 per cent over the next two years.

The local currency slid by 0.9 per cent, trading below 63 US cents as a result of a strengthening US dollar, and the possibility of a widening gap between US and Australian interest rates. A weakening currency could exacerbate inflation as Australia spends more on imports from countries with stronger currencies.

Tweet of the day:

Quote of the day: “If we do not act forcefully now it will be worse later on,” said Bank of England governor Andrew Bailey soon after lifting the UK’s interest rates. Despite his defence of the current increase, Bailey attempted to ease fears that rates could eventually hit 5 per cent: “We can’t make promises about future interest rates, but based on where we stand today, we think bank rate will have to go up by less than currently priced in financial markets.”

You may have missed: In the wake of the RBA’s cash rate rise this week, Australia’s four big banks have decided to increase their mortgage interest rates by 0.25 percentage points, in line with the RBA move. Major establishments such as Commonwealth Bank, Macquarie, Westpac, and ANZ will also push up some savings rates. This comes amid a plunge in new home loan commitments for housing, down by 8.2 per cent in September.

With AP

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