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The share market rallied for a third day in a sign investors were becoming more comfortable with the prospect of higher rates after US inflation surged and unemployment plunged in Australia.

The S&P/ASX 200 advanced 29 points or 0.44 per cent. The broader All Ordinaries gained 41 points or 0.6 per cent.

Gains in resource and tech stocks outweighed declines in banks and property stocks.

What moved the market

A resilient ASX took in its stride the possibility interest rates might jump as much as 75 basis points next month. Economists rushed to upgrade their forecasts after the unemployment rate fell to its lowest in 48 years.

The official jobless rate unexpectedly declined to 3.5 per cent last month from 3.9 per cent in May. Total employment increased by 88,400.

“This is the lowest unemployment rate since August 1974, when it was 2.7 per cent and the survey was quarterly,” Bjorn Jarvis, head of labour statistics at the ABS, said.

Good news for jobseekers means further upward pressure on wages, adding fuel to inflation. When the report landed this morning, the odds on the RBA hiking the cash rate target by 75 bp next month jumped from zero to 47 per cent. The dollar climbed 0.38 per cent to 67.58 US cents.

“We now think the RBA will most likely deliver a 75bp rate hike at its next meeting on 2 August (previously 50bp). Indeed, if Q2 CPI inflation data deliver a significant upside surprise on 27 July, we would not rule out a 100bp move,” Japanese investment bank Nomura said.

“We expect other market economists to react similarly to these developments over the next few days.”

Today’s ASX rally was also notable for coming after a losing night on Wall Street as markets reacted to the hottest US inflation report in four decades. The S&P 500 closed 0.45 per cent in the red after trading much lower.

“The reason behind the current optimism is that oil prices have started to come down from their highest level. For instance, both Crude and Brent oil are trading below the $100 mark, and lower oil prices should help inflation readings as it was higher oil prices that were fanning higher inflation,” Naeem Aslam, chief market strategist at AVATrade, said.

Market futures priced in an elevated possibility that the Federal Reserve might raise its benchmark rate by a full percentage point this month. Futures tied to the federal funds target rate indicated a 59 per cent chance of a 100 bp increase when the Fed meets in two weeks, up from 10 per cent before last night’s report.

Winners’ circle

Bolstering investment sentiment here were signs commodity prices were stabilising after iron ore, crude oil, gold and copper hit multi-month lows earlier in the week.

Iron ore futures in China rallied 1.5 yesterday and gained another 0.6 per cent this afternoon. Brent crude continued to steady just below US$100 a barrel. Coal prices, which have held strong during the recent volatility in other markets, were today trading near record levels.

Coal miners New Hope and Whitehaven scaled multi-year highs as Newcastle coal prices neared record levels set in March in the early days of the Ukraine-Russia war. New Hope surged 5.72 per cent to its strongest price since March 2019. Whitehaven soared 6.49 per cent to a level last seen in October 2018. Coronado gained 8.07 per cent.

The heavily-weighted bulk metal producers climbed off their lowest levels of the year. BHP rallied 1.3 per cent. Rio Tinto gained 2.03 per cent. Fortescue Metals firmed 2.47 per cent.

Energy producers drew a bid as Brent crude held below US$100 a barrel. The international benchmark eased seven US cents or less than 0.1 per cent this afternoon to US$99.50.

Santos advanced 1.45 per cent. Woodside Energy tacked on 1.56 per cent.

Telstra rose 0.77 per cent after completing its acquisition of Digicel Pacific in partnership with the federal government. The telecommunications giant also announced the competition regulator will not oppose its acquisition of 51.4 per cent of Fetch TV.

Sezzle finished flat at 20 cents following a brutal broker downgrade. RBC Capital Markets slashed its valuation of the buy now, pay later firm from $12 to 1 cent, citing bad debts, rising funding costs and negative cashflow.   

Doghouse

An earnings warning drove Bega Cheese down 8.45 per cent to its lowest since 2013. The dairy producer warned rising costs meant normalised earnings this fiscal year were expected to decline to $160-$190 million from forecast earnings of $175-$190 million in FY22.  

Lithium miner Lake Resources dropped 10.37 per cent after responding to an attack from short-seller J Capital Research. Lake defended its proprietary lithium extraction process against criticism it was unproven, but acknowledged previous CEO Stephen Promnitz sold shares during a blackout period in breach of ASX rules. The company said it was taking steps to ensure all directors and senior management were aware of their obligations.

Aurizon eased 1.57 per cent after the competition regulator waved through the rail haulage firm’s acquisition of One Rail Australia. Approval is conditional on Aurizon divesting ORA’s east coast rail haulage business. Aurizon will consider either a trade sale or a demerger.

Other markets

Most Asian markets declined. The Asia Dow faded 0.45 per cent. China’s Shanghai Composite dipped 0.16 per cent. Hong Kong’s Hang Seng eased 1.03 per cent. Japan’s Nikkei rallied 0.65 per cent.

US futures wavered as the Asian session wore on. S&P 500 futures were down 12 points or 0.32 per cent at the Australian close.

Gold gave up its post-US inflation report overnight gain. The yellow metal retreated US$10.60 or 0.6 per cent to US$1,725 an ounce.

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