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Australian shares closed at their highest in more than a month as upbeat earning updates cheered investors on both sides of the Pacific.  

The market continued to recoup its September losses, rising for the fourth time in five sessions. The S&P/ASX 200 climbed 39 points or 0.53 per cent to within 3 per cent of its August all-time high.

Technology and financial stocks led the advance. Well-received trading updates from retailers added to the improving mood.

What moved the market

The start of a new earnings season in the US and the annual general meeting and quarterly reporting seasons here have dragged the spotlight temporarily away from inflation and interest rate worries. Investors were today willing to overlook a seven-year high in oil overnight and an eight-month peak in Australian long-term interest rates after the Dow and S&P 500 rose to within 1 per cent of record levels.

“Strong corporate earnings helped counter concerns emerging from elevated inflation,” Kalkine Group CEO Kunal Sawhney said. “Investors were primarily impressed with the earnings at Johnson & Johnson and Travelers Cos., which were better than analyst expectations.

“While investors kept looking for signs that profit margins might be affected by higher costs, corporate earnings managed to overshadow concerns around supply chain disruptions and the COVID-19 Delta variant.”

Attention here was on the latest batch of trading updates from general meetings and quarterlies. Retailers Kogan, Adairs and Super Retail Group all rose (more below). Origin Energy and gold miner Evolution also rallied.

Investors took in their stride a surge in long-term interest rates to their highest in eight months. The yield on ten-year Australian government bonds hit 1.863 per cent this morning and was last up seven basis points at 1.805 per cent.

Rates have risen sharply over the last two months from below 1.1 per cent as rampant energy prices and supply chain issues fuel inflation. Overnight, US crude set a fresh seven-year high.

“Concerns loom that rising prices will put upward pressure on the input costs of corporates, which will eventually pass on high prices to consumers,” Mr Sawhney said. “Besides, speculations are rife that higher energy prices could trigger demand destruction and cap US economic growth, which might lead to a return of 1970s style ‘stagflation’.”

Winners’ circle

Linen seller Adairs was the pick of the retailers holding AGMs today, rising 2.3 per cent. The company reported Q1 online sales increased 15 per cent above the same period last year and it expects pent-up demand to drive foot traffic ahead of Christmas as the country reopens.

Super Retail Group gained 1.69 per cent on news online sales jumped 96 per cent year to date to increase their share of group sales to 30 per cent. Gross margin improvements have been sustained in the first 16 weeks of the new year.

The Reject Shop faded 0.81 per cent after CEO Andre Reich warned the “operating environment remained uncertain” and stock availability had been impacted by shipping delays.

Kogan jumped 6.68 per cent on news the online retailer had cleared an inventory backup that impacted recent earnings updates. The reduction in inventory allowed the firm to close overflow warehouses, reducing costs by $800,000 per month.

Evolution Mining beat its quarterly gold production guidance, producing 170,681 ounces versus a predicted 155,000 – 167,000 ounces. The share price rose 1.34 per cent.

Origin Energy firmed 0.98 per cent after reaffirming full-year earnings guidance. Earnings were expected to recover by $150 – $250 million as wholesale energy prices flow through to tariffs.

BHP climbed 0.47 per cent after topping a bid from Andrew Forrest’s Wyloo Metals for Canadian nickel miner Noront. Fortescue Metals declined 0.41 per cent. Rio Tinto eased 0.07 per cent.

Elsewhere at the heavyweight end, Brambles gained 2.46 per cent, Afterpay 1.57 per cent and Transurban 1.4 per cent. The big four banks gained between 0.6 and 1.1 per cent. Macquarie Group’s record run stretched to a seventh session and a gain of 1.98 per cent.

Worley jumped 7.53 per cent to $11.28 after UBS raised its rating to ‘Buy’ and its price target to $13.20.  

Doghouse

Flight Centre slipped 4.79 per cent despite news international bookings tripled between July and September, surpassing domestic bookings for the first time since the start of the pandemic. Managing Director Graham Turner told today’s AGM total transaction value more than doubled to $1.6 billion over the first quarter, compared to the same period last year.

Beach Energy slid 3.68 per cent after reporting a 4 per cent decline in production during the first quarter and an 8 per cent drop in sales revenue.

An upgrade to gold production guidance failed to lift OZ Minerals. The miner dipped 0.42 per cent despite reaffirming full-year copper guidance and raising its gold projection to 220,000-243,000 ounces from previous guidance of 205,000-228,000.

Whitehaven Coal sagged 7.85 per cent after China’s state planner reportedly threatened to intervene in coal markets to tackle soaring prices. Chinese thermal and coking futures hit limit down in response, according to ForexLive.

Other coal miners also declined. Coronado shed 2.96 per cent and New Hope 4.78 per cent.

Other markets

China underperformed other Asian markets after Sinic Holdings became the latest property firm to default. The Shanghai Composite edged up 0.03 per cent. Developer Evergrande has until the end of this week to meet outstanding payments on dollar bonds.

Hong Kong’s Hang Seng rallied 1.31 per cent. The Asia Dow added 0.64 per cent. Japan’s Nikkei gained 0.27 per cent.

US futures were flat.

Brent crude retreated 41 US cents or 0.5 per cent to US$84.67 a barrel from last night’s three-year closing high.

Gold bounced US$3 or 0.17 per cent to US$1,773.50 an ounce.

The dollar firmed 0.31 per cent to 74.97 US cents.

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