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Australian shares rallied into tonight’s US Federal Reserve meeting as the interest rate jitters dogging financial markets subsided.
The S&P/ASX 200 climbed 68 points or 0.93 per cent. The rally eclipsed a 46.5-point slump yesterday after the RBA watered down its commitment to low rates.
Ten of eleven sectors advanced, led by gains in miners, banks and supermarkets. Fortescue Metals, ANZ, Macquarie Group and Coles were the pick of the index heavyweights.
What moved the market
A revitalised market briefly put on as much as 107 points this morning, supported by a weaker dollar and a sharp pullback in long-term interest rates. The Aussie slid 1.2 per cent overnight and was lately steady at 74.32 US cents.
The yield on ten-year Australian government bonds dropped almost six basis points to 1.846 per cent after trading above 2.1 per cent in the run-up to yesterday’s RBA policy update. The bank reduced its commitment to low rates by scrapping its bond yield target and dropping any reference to a timeline for raising the cash rate.
“The speed of change in the narrative is remarkable given the RBA just last month reiterated that conditions for a rate increase were unlikely to be met before 2024,” Kalkine Group CEO Kunal Sawhney said. “The RBA’s quandary is the latest example of how unexpectedly strong inflation around the globe is putting pressure on central bankers to rethink policy timelines as the tradeoff shifts between supporting pandemic-hit economies and overjuicing prices.”
Mr Sawhney said the fast-changing rates outlook should encourage investors to explore fresh opportunities.
“The financial sector benefits from higher rates through increased profit margins,” he said. “Brokerages often see an uptick in trading activity. Besides, industrials, consumer names, and retailers can also outperform when the economy improves, and interest rates move higher.
“Consumer discretionary stocks also can see a bump because improving employment, coupled with a healthier housing market. Manufacturers and sellers of kitchen appliances, cars, clothes, hotels, restaurants, and movies also benefit from the economic health dividend should be considered,” he added.
US stocks closed at fresh highs overnight ahead of tonight’s central bank policy statement. The major benchmarks put on between 0.34 and 0.39 per cent. The Fed is widely expected to announce tonight plans to reduce some of the emergency stimulus introduced to support the economy through the pandemic.
“The US economy is in a much better footing currently,” Mr Sawhney said. “With inflation at current levels, it does not need accommodative policies and a taper in turn will send a signal to the market that the economy is better off.”
Winners’ circle
Bargain-hunters snapped up the major miners at 11-month lows following a collapse in ore prices yesterday through the key US$100 a tonne psychological level. Fortescue Metals rose 3.08 per cent. Rio Tinto gained 1.17 per cent.
BHP climbed 1.07 per cent after engaging with rival bidder Wyloo Metals over plans to acquire Canada’s Noront Resources. BHP topped Wyloo’s bid for the nickel miner, but said it was now seeking Wyloo’s support for a “mutually beneficial arrangement” if its bid is accepted.
On the wider mining spectrum, Orocobre put on 6.71 per cent, Pilbara Minerals 5.43 per cent, Mineral Resources 3.91 per cent and Whitehaven Coal 3.8 per cent.
AMP rallied 9.3 per cent after completing its exit from the life insurance industry. Resolution Life Group will buy out AMP’s 19.13 per cent interest in Resolution Life Australasia for $524 million. The divestment will strengthen AMP’s capital by $459 million.
Packaging company Amcor reaffirmed full-year guidance after increasing earnings per share by 4 per cent during a “challenging” first quarter. Sales were tempered by shortages of materials. Shares in the company firmed 0.75 per cent.
A decline in bond yields lifted bond proxies without denting lenders. Coles tacked on 1.68 per cent, CSL 0.91 per cent, Woolworths 0.85 per cent and Wesfarmers 0.81 per cent.
Macquarie Group briefly cracked $200 a share before paring its rise to 1.86 per cent at $199.28. The high-street banks advanced between 0.1 and 1.35 per cent.
Telstra finished flat after the Department of Defence renewed a contract for network and telecommunications services. The contract will be worth more than $1 billion over five years.
Doghouse
Payments platform Tyro Payments dived 15.02 per cent after declining to offer full-year profit guidance at today’s AGM. The company faces a class action following a wave of connectivity problems at merchant terminals earlier this year. CEO Robert Cooke said settlements had been reached with 93 per cent of merchants who sought remediation.
Fewer than one in four companies declined. At the heavyweight end, Transurban slipped 0.29 per cent and Afterpay 0.12 per cent.
Seven West Media eased 2.78 per cent following three straight gains since scooping up Prime Media. Telecom Uniti retreated 3.59 per cent. Other notable falls included HUB24 -3.06 per cent, Perpetual -1.55 per cent and IAG -1.11 per cent.
Other markets
An increasingly negative session on Asian markets saw the Asia Dow fade 0.14 per cent, China’s Shanghai Composite 0.38 per cent and Hong Kong’s Hang Seng 0.97 per cent. Trade in Japan was suspended for Culture Day.
US futures declined five points or 0.1 per cent.
Oil turned lower ahead of tomorrow night’s OPEC+ meeting. Brent crude slumped 71 US cents or 0.84 per cent to US$83.99 a barrel.
Gold continued to fade leading into the Fed meeting, falling US$7.50 or 0.42 per cent to US$1,781.90 an ounce.
