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Australian shares backed off a seven-month high ahead of a US jobs report tonight that could set the market tone for next week.
The S&P/ASX 200 trimmed a winning week following a mixed close on Wall Street. The Australian benchmark declined 53 points or 0.72 per cent this afternoon. The reversal trimmed the index’s tally for the week to 42.5 points or 0.6 per cent.
Gold miners outperformed after the yellow metal’s biggest rally in two and a half years. Healthcare, tech and telecommunications companies also advanced. Energy and property stocks were the session’s biggest weights.
What moved the market
A week bookended by losses continued the market’s steady march higher. Three straight gains through the middle sealed a fifth weekly advance from six weeks. The index has now risen almost 14 per cent since the lows of early October.
The rally continued this week after Federal Reserve Chair Jerome Powell said the central bank was preparing to reduce the scale of future rate hikes after raising rates by three percentage points in the last four months. Wall Street jumped on the news, before taking a breather overnight.
The Dow and S&P 500 finished lower as caution set in ahead of employment data that could either bolster the case for a rates slowdown or push the needle towards another bumper hike.
“Tonight’s employment data could provide further evidence that the Fed can go slow on rate hikes from December onwards,” Kunal Sawhney, chief executive of research group Kalkine, said.
“While the market expects addition of 200k jobs in November, down from 261k job addition in October, the actual job creation may be much lower than 200k in November. The ADP data [released midweek] shows that private sector job addition in November was nowhere near expectations.
“The Labor Department’s data due tonight could reflect a similar picture, and if it does, it would definitely cheer the market.”
The Reserve Bank meets next week to set the Australian cash rate target. Most economists expect the decision to come down to whether to pause or raise by a quarter of a point. Commonwealth Bank and HSBC both anticipate one more hike before a pause. Westpac expects the bank to raise twice more by a quarter-point.
AMP’s chief economist, Shane Oliver also favours another increase after recent employment and wages data came in stronger than expected.
“The debate on Tues at the RBA is likely to be between a pause & +0.25%. The mthly CPI & lags support the former but our base case is the latter given stronger than expected jobs & wages data & no meeting in Jan. Maybe the RBA will just do +0.15% taking the cash rate to a neat 3%,” Oliver tweeted.
At a panel discussion in Bangkok this afternoon, Governor Philip Lowe said the central bank must show the public that inflation will return to the 2-3 per cent target range. Lowe said the aim was to slow inflation without negatively impacting the economy too much.
Winners’ circle
Gold miners topped the leader board for a second day following the yellow metal’s strongest rally since April 2020. Gold jumped US$55.30 or 3.1 per cent overnight as a retreat in the US dollar continued.
“Traders know that an era of aggressive interest rate hikes is over, and only smaller rate hikes will be taking place,” Naeem Aslam, chief market analyst at AVATrade, said. “The dollar index… is primarily losing momentum, and this is pushing the price of gold higher,” he added.
St Barbara surged 10.4 per cent, Capricorn Metals 8.09 per cent, Silver Lake Resources 7.03 per cent and Ramelius Resources 4.76 per cent. Sector heavyweight Newcrest added 2.08 per cent.
A rebound in battery metal miners continued. Liontown firmed 2.97 per cent, Lynas Rare Earths 2.5 per cent and Nickel Industries 2.49 per cent.
The healthcare sector retested a three-month high. Healius rallied 3.77 per cent, ResMed 1.64 per cent, CSL 1.08 per cent and Fisher & Paykel Healthcare 1.29 per cent.
Warrego Energy jumped 8.65 per cent to 28.25 cents as the battle for control of the gas producer hotted up. Beach Energy raised its initial offer of 20 cents per share to 25 cents. The increased bid values Warrego at $305.8 million.
The revised offer came after Gina Rhinehart’s Hancock Energy topped Beach’s initial proposal with an offer of 23 cents per share. Beach shares fell 2.44 per cent.
Doghouse
Santos skidded 3.77 per cent after the Full Federal Court dismissed the company’s appeal against a decision that halted drilling at its Barossa Gas Project north-west of Darwin. The company said it would apply for all remaining approvals in accordance with guidance provided by the court.
Woodside Energy fell 2.56 per cent amid questions over what the decision meant for other offshore drillers. The federal government said it would “consider its implications in relation to Australia’s offshore environment and safety regulatory regime”.
Coal companies declined after Coronado warned heavy rain in Queensland has dented production and put costs guidance at risk. The Bowen Basin miner said it would not meet production volume guidance of 16.9-17.1 million tonnes.
“The record rainfall experienced by Coronado and our peers in 2022 across the Bowen Basin has been unprecedented,” Managing Director and Chief Executive Officer Gerry Spindler said.
Shares in the miner dropped 4.31 per cent. Whitehaven Coal shed 1.58 per cent. New Hope lost 2.38 per cent.
Real estate investment trusts were the day’s biggest drag as traders booked profits at a three-month high. The heavily-geared sector traded yesterday at levels last seen in August after the US Federal Reserve indicated it was preparing to slow the hectic current pace of interest rate increases.
Charter Hall Group reversed 5.13 per cent, Goodman Group 4.11 per cent and Scentre Group 2.66 per cent.
Adbri fell 3.21 per cent after warning of a costs blowout as it consolidates two cement production sites into a single operation servicing WA. The firm has engaged an engineering firm to undertake an external review amid escalating construction costs and labour constraints. The company has invested $94 million in the project and estimates it would need to spend another $170-$200 million to complete.
Toll road operator Transurban dropped 0.91 per cent after reaffirming full-year distribution guidance of 53 cents per stapled security. Holders will receive an unfranked half-year distribution of 26.5 cents per security.
Atlas Arteria fell 3.63 per cent after completing the acquisition of a two-thirds stake in the Chicago Skyway toll road. The company recently raised $3.098 billion to fund the purchase.
Domino’s Pizza dipped 0.03 per cent after raising $150 million from investors to take complete ownership of its German joint venture.
Other markets
Asian markets retreated. The Asia Dow gave up 0.81 per cent, China’s Shanghai Composite 0.34 per cent, Japan’s Nikkei 1.69 per cent and Hong Kong’s Hang Seng 0.66 per cent.
US futures continued to lose ground. S&P 500 futures faded eight points or 0.2 per cent.
Oil rallied ahead of this weekend’s OPEC+ meeting. Brent crude firmed 14 US cents or 0.16 per cent to US$87.01 a barrel.
Gold trimmed last night’s 3.1 per cent charge. The yellow metal dipped US$4.60 or 0.25 per cent to US$1,810.60 an ounce.
The dollar firmed 0.04 per cent to 68.13 US cents.
