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Optimism about China reopening and hopes for a slowdown in interest rate hikes fuelled the share market’s best week in two months.
The S&P/ASX 200 climbed 48 points or 0.66 per cent today to extend its tally for the week to almost 3.1 per cent.
Today’s rally was the index’s seventh in nine sessions this year. The Australian benchmark has put on 4.1 per cent so far for 2023.
Energy producers, banks and consumer stocks led today’s up-leg. Shares in index heavyweight BHP hit a new record. Defensive sectors trailled during a “risk on” session.
What moved the market
Yesterday’s up-tick in domestic inflation was swiftly forgotten after US consumer prices declined for the first time in more than a year. Headline annual inflation in the US dropped to 6.5 per cent last month from 7.1 per cent in November.
Equities rallied and treasury yields declined as traders upped their bets that the next interest rate increase in the US will be smaller than the last.
Goldman Sachs said “the December CPI likely seals the deal on a shift to 25bp hikes in February” from 50bp in December and 75bp in prior months. Market pricing on a 25bp increase jumped to 91 per cent.
The S&P 500 ground out a gain of 0.34 per cent. The Dow and Nasdaq Composite both put on 0.64 per cent.
Bond yields, which reflect expectations for official interest rates, declined on both sides of the Pacific. The Australian ten-year yield hit a three-week low this morning before resetting to even. The one-year yield dropped to 3.19 per cent, close to the official cash rate of 3.1 per cent. The ten-year yield in the US tested four-week lows.
Mining heavyweight BHP has provided much of the momentum for the ASX’s rally since the turn of the year. The index’s largest company by market capitalisation hit a fresh record this session, trading as high as $49.94 before paring its advance to 0.53 per cent at $49.64.
“ASX’s BHP had a bad run in the latter half of 2022, but the miner has been one of the favourite large caps in 2023. What supports the stock is first the reopening of China and second the increase in iron ore prices, making BHP’s exports more profitable,” Kunal Sawhney, CEO of research group Kalkine, said.
BHP’s advance came as iron ore prices in China rose another 3 per cent today. The market’s other megacaps, Commonwealth Bank and health giant CSL, also rose.
Winners’ circle
Energy producers led after oil extended its winning run into a sixth session in the US. Overnight, West Texas Intermediate settled 98 US cents or 1.3 per cent ahead at US$78.39 a barrel. The international benchmark, Brent crude, settled US$1.36 or 1.65 per cent higher at US$84.03.
Santos climbed 2.38 per cent, Woodside 1.24 per cent and Beach Energy 0.94 per cent. Coal miner New Hope gained 5.07 per cent, Karoon Energy 2.82 per cent and Ampol 1.63 per cent.
An eight-month high in gold lifted the S&P/ASX sub-index of gold miners to a level last seen in May. Ramelius firmed 2.84 per cent, De Grey 1.66 per cent and Newcrest 0.31 per cent.
The financial sector hit a four-week peak, fuelled by a 1.62 per cent rise in NAB and a gain of 1.25 per cent for CBA. ANZ added 0.99 per cent. Westpac firmed 1.11 per cent.
Other heavyweight gains included Aristocrat Leisure +3.88 per cent and James Hardie +2.42 per cent.
Tracking app-maker Life360 popped 11.07 per cent after announcing job cuts to accelerate its drive towards profitability. The company will generate annual cost savings of at least $15 million by reducing its workforce by around 14 per cent.
Doghouse
Defensive stocks struggled as traders sought better exposure to a market recovery. Supermarkets Woolworths and Coles lost 1.14 and 0.89 per cent, respectively.
Lifestyle Communities shed 1.99 per cent, Endeavour 1.87 per cent and Ansell 1.55 per cent.
The session’s worst performers were Imugene -5.88 per cent, Lake Resources -4.62 per cent and Core Lithium -4.62 per cent.
Other markets
Most Asian markets advanced. The Asia Dow firmed 0.31 per cent, China’s Shanghai Composite 0.56 per cent and Hong Kong’s Hang Seng 0.16 per cent. Japan’s Nikkei gave up 1.1 per cent.
US futures backed off a one-month high. S&P 500 futures dropped nine points or 0.23 per cent.
Oil trimmed six days of gains. Brent crude dipped 36 US cents or 0.4 per cent to US$83.67 a barrel.
Gold inched up 20 US cents or 0.01 per cent to US$1,899 an ounce.
The dollar eased 0.18 per cent to 69.55 US cents.
