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Australian shares rose for the first time in three sessions amid signs Wall Street was increasingly optimistic about a deal to avert a US government default.
The S&P/ASX 200 rallied 50 points or 0.7 per cent. The gains followed a mid-session reversal in the US overnight and strengthening futures today after the Republicans offered a stop-gap proposal to raise the debt ceiling.
The ASX joined a regional rally. Tech and defensive stocks spearheaded the advance. Energy producers retreated in the wake of overnight declines in crude oil and natural gas.
What moved the market
The market moved higher for the week following overnight progress in addressing two major headwinds for financial markets: the US debt ceiling stalemate and surging energy prices. Overnight, the S&P 500 reversed from a loss of almost 1.3 per cent to a gain of 0.41 per cent after Senate Republicans offered a short-term extension to the debt limit to avert a catastrophic default. The federal government was due to exhaust its spending capacity on October 18.
US futures continued to build this afternoon in a sign investors were warming to the news, even if it merely kicks the can down the road. The Republican proposal would give the Democrats until December to produce a longer-term solution.
S&P 500 futures rallied 19 points or 0.42 per cent as Asian markets. Nasdaq futures climbed 0.56 per cent and Dow futures 0.32 per cent.
“People were nervous about the debt ceiling,” Jay Hatfield, CEO of Infrastructure Capital Advisors, told MarketWatch.
The Asia Dow climbed 1.06 per cent, Hong Kong’s Hang Seng 2.41 per cent and Japan’s Nikkei 0.45 per cent. Mainland Chinese markets were closed for the last day of Golden Week.
Also cheering investors was a cool-down in energy prices. Natural gas prices dived 10.1 per cent in the US after Russian President Vladimir Putin pledged Russian support to help with soaring prices in Europe. Oil and thermal coal also declined.
Winners’ circle
Soaring energy prices have been one of the leading causes of higher inflation this year, fuelling a run-up in bond yields. Rate-sensitive tech stocks and companies that compete with bonds for investment flows rallied as yields backed off four-month highs. The yield on ten-year Australian government bonds eased more than two basis points to 1.595 per cent after touching 1.62 per cent yesterday.
Megaport gained 3.6 per cent, Afterpay 3.12 per cent, EML Payments 3.06 per cent and WiseTech 2.91 per cent. Among bond surrogates, Woolworths rose 1.51 per cent, Goodman Group 1.24 per cent, CSL 0.65 per cent and Coles 0.65 per cent.
The financial sector provided much of the muscle behind the advance. Macquarie Group put on 1.66 per cent, NAB 1.6 per cent, Westpac 1.4 per cent and ANZ 1.02 per cent. CBA finished flat following a broker downgrade yesterday.
Australian Pharmaceutical Industries (API) rose 1.67 per cent as Wesfarmers firmed as a likely buyer after securing Washington H. Soul Pattinson’s 19.3 per cent stake in the pharmaceutical wholesaler. Wesfarmers said it remained committed to acquiring 100 per cent of the shares in API despite a rival bid from Sigma Health.
Wesfarmers shares edged up 0.48 per cent. Sigma closed unchanged.
Collins Foods climbed 6.93 per cent on news it had contracted to run the KFC franchise in the Netherlands. Managing Director and CEO Drew O’Malley said there was a substantial opportunity to grow the business, due to the brand’s low penetration rate relative to other markets.
Mayne Pharma closed flat after the US regulator asked for more information about the company’s application to sell a generic version of the NuvaRing birth control device. Mayne said the response from the Food and Drug Administration was a step closer to approval.
Doghouse
Coal producers retreated from multi-year highs after China began releasing Australian imports from bonded storage to relieve an energy crunch. Reuters reported China had released supplies that had been unloaded, then locked away as part of an unofficial Chinese ban on Australian coal dating back to November.
Whitehaven Coal shed 6.96 per cent and Coronado 2.02 per cent. New Hope edged up 0.39 per cent
Oil and gas companies declined in the wake of commodity price falls. Santos dropped 2.15 per cent, Oil Search 1.76 per cent, Beach Energy 0.35 per cent and Woodside Petroleum 0.12 per cent.
Fortescue Metals eased 1.9 per cent to a fresh 15-month low ahead of the resumption of iron ore trade in China tomorrow at the end of Golden Week. BHP declined 0.03 per cent and Rio Tinto 0.01 per cent.
Qube dropped 0.61 per cent after the competition regulator, the ACCC, announced an investigation into the logistics firm’s $90 million acquisition of the Newcastle Agri Terminal. The regulator said Qube ignored a request to delay completion while the ACCC assessed the deal.
“By choosing to proceed before the ACCC had a chance to conduct its review, Qube and the former owners of the Newcastle Agri Terminal are exposed to potential legal action by the ACCC,” Chair Rod Sims said.
Other markets
Oil continued to lose ground in the wake of last night’s 1.8 per cent decline. Brent crude slipped 38 US cents or 0.47 per cent to US$80.70 a barrel.
Gold dipped US$2.20 or 0.12 per cent to US$1,759.60 an ounce.
The dollar lifted 0.04 per cent to 72.82 US cents.
