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The share market had its best session in more than three weeks after a slowdown in US inflation prompted investors to wind back their rates expectations.
The S&P/ASX 200 rallied 78 points or 1.12 per cent to 7071.
Today’s close was the highest since June 8. The rally was the strongest since a 110-point surge on July 20.
Consumer, property and mining stocks topped the sector gains. Utilities was the only sector to sit out the rally.
What moved the market
Investors around the world breathed a sigh of relief after consumer prices levelled off in the US after months of strong gains. Prices in the world’s largest economy were steady in July, bringing the consumer price index down more than expected to year-on-year growth of 8.5 per cent from 9.1 per cent in June. Core inflation (which strips out volatile food and energy prices) also came in weaker than expected.
“Much of the headline decline was driven by energy which fell -4.6% m/m in July after having surged 7.5% in June – falling gasoline prices the major driver at -7% m/m from +11.2% in June. As for the core measure, two large components weighed with lodging away from home ‑2.7% m/m and airline fares -7.8% m/m,” NAB’s Director, Economics, Tapas Strickland, said.
While one month is far from a trend, investors embraced the idea inflation may have peaked, relaxing pressure on the Federal Reserve to hike rates by 75 basis points next month. Stocks jumped. Bond yields and the greenback slumped.
The Nasdaq Composite surged 2.89 per cent, outperforming gains of 1.63 per cent for the Dow and 2.13 per cent for the broader S&P 500.
S&P 500 futures continued higher this afternoon, sharpening hopes last night’s rebound has more to give. S&P 500 futures climbed 11 points or 0.25 per cent.
“US and European futures are trading higher as traders believe that it is time to shelf any concerns about recession as inflation has seen its peak in the US while the job market remains as strong as it can,” Naeem Aslam, chief market strategist at AVATrade, said.
A report released this morning showed Australians no longer expect prices to rise as high as anticipated when polled a month previous. The expected inflation rate dropped by 40 basis points to 5.9 per cent from 6.3 per cent in July, according to the Melbourne Institute.
The report suggests ordinary Australians are more relaxed about the outlook for prices than the Reserve Bank. The RBA expects headline inflation to reach 7.75 per cent this year before falling towards 4 per cent next year and 3 per cent in 2024.
The busiest day of the fledgling reporting season so far included well-received updates from QBE, Mirvac and GQG Partners. Telstra and AMP fell after reporting.
Winners’ circle
A stunning week for lithium miners continued with another round of strong gains as the US Congress prepared to pass a bill containing significant support for green metals.
Lake Resources surged 20.83 per cent. Shares that traded as low as 54.5 cents less than a month ago hit $1.59 today.
Core Lithium rallied 4.84 per cent to a four-month high. Liontown Resources put on 4.65 per cent.
At the junior end, Ragusa Minerals surged 65 per cent on news its Northern Territory project has “several high priority confirmed lithium bearing targets”.
Growth stocks caught a lift from a sharp retreat in the expected cost of borrowing in the US. Life360 flew up 13.26 per cent, Novonix 10.85 per cent and Block 8.42 per cent.
QBE rallied 3.29 per cent as investors looked past a sharp decline in half-year profits attributed largely to adverse mark-to-market impacts on investments and reinsurance costs. Half-year net profit fell to $151 million from $441 million in HY21. Gross written premiums increased by 18 per cent.
Mirvac climbed 3.83 per cent after beating guidance by increasing statutory full-year profit to $906 million. Operating profit increased by 8 per cent to $596 million. Net tangible assets increased by 4 per cent.
News of net inflows of US$6.3 billion through the first six months of the year helped lift GQG Partners 4.89 per cent. Funds under management grew 23 per cent.
Doghouse
Telstra faded 1.25 per cent after reporting declines in several metrics. Full-year earnings slipped 5 per cent to $7.3 billion. Net profit dropped 4.6 per cent to $1.8 billion.
Nonetheless, the telco raised its dividend for the first time since 2015. Shareholders will receive a fully-franked final dividend of 8.5 cents per share following the completion of a four-year transformation plan, up from 8 cents.
CEO Andy Penn said the dividend hike “recognises the confidence of the Board following the success of our T22 strategy, the ambition in our T25 strategy of high-teens EPS growth from FY21 – FY25, the strength of our balance sheet and the recognition by the Board of the importance of the dividend to shareholders.”
AMP eased 0.86 per cent as a decline in underlying half-year profit offset news the wealth manager will return $1.1 billion to shareholders. Underlying first-half net profit after tax fell to $117 million from $155 million in the same period last year.
“The strength of our balance sheet and capital position has enabled us to announce a return of capital to shareholders of A$1.1 billion. This will include a A$350 million on-market share buyback, to commence immediately, with a further A$750 million of capital returns planned in FY 23, subject to regulatory and shareholder approval,” chief executive Alexis George said.
Rio Tinto was the biggest heavyweight drag, falling 3.93 per cent as its shares traded without the right to the upcoming dividend.
Computershare fell another 0.86 per cent following yesterday’s trading update.
APA Group dropped 2.22 per cent as traders rotated out of value plays into stocks with greater upside in a recovery. Other value stocks to decline included Elders -1.79 per cent, Cleanaway Waste -1.47 per cent and AGL Energy -0.93 per cent.
Other markets
In Asia, the regional Dow firmed 0.4 per cent, China’s Shanghai Composite 1.48 per cent and Hong Kong’s Hang Seng 2.14 per cent. Trade in Japan was suspended for the Mountain Day public holiday.
Oil trimmed last night’s 1.1 per cent rally. Brent crude retreated five US cents or 0.05 per cent to US$97.35 a barrel.
Gold faded US$12.20 or 0.7 per cent to US$1,801.50 an ounce.
The dollar pared last night’s powerful rebound back above 70 US cents, easing 0.1 per cent to 70.75 US cents.
