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The prospect of record-low rates for at least another two to three years propelled the ASX to its strongest close in more than a week.
The S&P/ASX 200 rallied 32 points or 0.45 per cent to its best finish since last Monday’s pandemic-era closing high. The index fell short of a new 14-month closing peak by less than a point.
Gains for CSL, Coles and the banks outbalanced declines in Woolworths and the major miners.
What moved the market
The share market jumped more than 20 points and the dollar dived around a third of a cent when this week’s most important economic report showed underlying inflation recorded the lowest annual increase since records began. The trimmed mean annual rate of inflation last quarter – the measure favoured by the Reserve Bank for making decisions on rates – was a lower-than-expected 1.1 per cent.
Underlying inflation increased just 0.3 per cent in the quarter. Headline inflation increased by 0.6 per cent in the quarter and 1.1 per cent in the year. The dollar eased 0.29 per cent to 77.45 US cents in the wake of the report.
The data appeared to put to rest any possibility surging inflation might compel the Reserve Bank to raise the cash rate before previous guidance of ‘2024 at the earliest’. The central bank has previously said underlying inflation would need to be sustainably within its 2-3 per cent target range before any increase.
“The slowest rate in 38 years of records. And annual inflation is also just 1.1 per cent. Bottom line: the Reserve Bank will maintain its resolve and keep the cash rate at record lows until 2024,” CommSec Chief Economist Craig James wrote.
“Underlying price pressures remained soft. Will keep RBA dovish,” AMP Chief Economist Shane Oliver tweeted.
Also helping market sentiment was an up-tick in US futures despite mixed after-market earnings updates from Microsoft and Google this morning. S&P 500 futures rose four points or 0.1 per cent. Nasdaq futures gained 0.05 per cent. Futures for the Dow (which has Microsoft as a component, but not Alphabet) fell 39 points or 0.12 per cent.
Winners’ circle
Rate-sensitive banks retained most of their gains despite the inflation report dampening the prospects for higher margins any time soon. NAB rallied 1.13 per cent, CBA 0.99 per cent and ANZ 0.52 per cent. Westpac edged up 1.24 per cent after settling without liability for $30 million a class action over life insurance policies.
A profit upgrade on strong demand for personal protective equipment lifted Ansell 3.89 per cent to a five-month high. The health and safety protection firm raised its full-year earnings per share guidance to US192 – US202 cents from previous guidance of US160 – US170 cents.
Mirvac also issued an earnings upgrade, citing improved rent collection rates and better-than-expected residential sales and settlements. The property group raised its full-year guidance to 13.7 cents per share from previous guidance of 13.1-13.5 cents per share. The share price rose 3.12 per cent.
Suncorp climbed 0.77 per cent following the sale of its Australian Wealth business to LGIAsuper for around $45 million. Downer EDI climbed 7.33 per cent as it held an Investor Day.
Coles rallied 1.47 per cent as investors looked beyond a 6.1 per cent decline in supermarket sales last quarter as the Covid sales bounce wore off. Liquor and Coles Express sales increased by 2.6 and 7.4 per cent, respectively. Costs relating to Covid were at the lower end of guidance. Rival Woolworths shed 0.65 per cent.
Kogan bounced 7.13 per cent off yesterday’s 11-month low. The online retailer has lost almost half its market value this year.
Doghouse
The mining giants were the heaviest drag on the index despite fresh highs in copper and iron ore. Rio Tinto sank 1.21 per cent, BHP 0.33 per cent and Fortescue Metals 1.48 per cent. Gold miner Newcrest gave up 3.42 per cent.
“The commodity market appears to be entering into another supercycle on the back of charged-up iron ore space as the world turns to infrastructure to foster its post COVID-19 recovery,” Kalkine Group CEO Kunal Sawhney said. “Concerns over steel production curbs seem to be stimulating the demand for high-grade iron ore as the less-polluting material which enables Chinese steel mills to meet their emission control requirements while retaining strong output.”
JB Hi-Fi skidded 4.02 per cent to a seven-week low on news Group CEO Richard Murray will leave the retailer to head up Solomon Low’s Premier Investments. Terry Smart, currently Managing Director of The Good Guys, will succeed Murray. Premier Chairman Lew welcomed Murray as “one of the best retailers in Australia”. Premier shares climbed 2.24 per cent.
A warning about the deteriorating Covid situation in Papua New Guinea sent St Barbara down 7.88 per cent to its lowest level in more than a year. The gold miner said it might miss full-year guidance if the outlook deteriorated. The warning dampened enthusiasm over a record month in March. Ramelius Resources sank 9.22 per cent after March quarter gold production fell towards the lower end of guidance.
Link Administration sank 6.25 per cent on news a consortium of investors had abandoned a takeover attempt. The superannuation administration firm said the consortium, which included Pacific Equity Partners and Carlyle Group, had withdrawn their offer, which Link previously dismissed as materially undervaluing the group.
Other markets
A subdued afternoon on Asian markets saw the Asia Dow ease 0.02 per cent and China’s Shanghai Composite dip 0.04 per cent. Hong Kong’s Hang Seng added 0.09 per cent. Japan’s Nikkei gained 0.41 per cent.
Oil built on last night’s one-week high. Brent crude climbed 21 cents or 0.32 per cent to US$66.08 a barrel. Gold skidded $9.80 or 0.55 per cent to US$1,769 an ounce.
