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Aussie shares hit a sixth straight record high before closing lower as investors weighed positive lockdown news, a plunge in bond yields and mixed signals on inflation.
The S&P/ASX 200 peaked at 7334.9 after gaining as much as 42 points in early action. The index faded to a loss of 22 points or 0.31 per cent as most Asian markets declined.
Supermarkets and banks led the sell-off. Mining stocks resisted the downturn.
What moved the market
Stocks hit their high early in the session following reports Victoria was set to ease Covid-19 restrictions. Travel and tourism stocks kicked higher ahead of the announcement Greater Melbourne and regional Victoria will loosen restrictions tomorrow night. The state recorded just one new locally-acquired case yesterday.
“Optimism is brewing among Aussies as Victoria’s two-week-long snap lockdown is set to end tomorrow,” Kalkine Group CEO Kunal Sawhney said. “With experts projecting the Victoria lockdown denting the country’s GDP by approximately one billion dollars per week, the lifting of restrictions is surely a piece of welcome news for the Australian economy.”
The announcement helped offset news consumer confidence dropped when the Victorian government sent the state back into lockdown. Westpac’s consumer confidence index dropped 5.2 per cent to 107.2 from 113.1 last month. The fall extended the index’s decline to almost 10 per cent in two months.
“The latest fall in June is almost certainly due to concerns around the two-week lockdown in Melbourne. The survey was conducted during the first week of the lockdown,” Westpac Chief Economist Bill Evans said.
“The index is now back at the level we saw back in January when the country was impacted by significant lockdowns in parts of Sydney and Queensland.”
The yield on ten-year Australian bonds fell almost four basis points to its lowest since February, a sign markets are less concerned about inflation. Reserve Bank Assistant Governor Christopher Kent this morning repeated the bank’s well-worn mantra that it does not expect inflation to settle within its target range until at least 2024.
“There are good prospects for growth and an eventual increase in wages and inflation,” he told a summit this morning. “We anticipate that will be a gradual process, with inflation unlikely to be sustainably within the target range of 2−3 per cent until 2024 at the earliest.”
The knock-on effect of soaring commodity prices lifted Chinese factory gate prices to their highest since 2008. The producer price index soared 9 per cent year-on-year, according to data this morning. However, consumer prices rose a smaller-than-expected 1.3 per cent.
“We believe the net effect of all this will be slower profit growth for producers until consumer power recovers further,” Iris Pang, ING’s Chief Economist, Greater China, said.
Overnight, the S&P 500 finished near flat for a second session. The Dow eased 0.09 per cent and the Nasdaq added 0.31 per cent as falling bond yields encouraged traders into growth stocks.
Winners’ circle
A 3.7 per cent advance in iron ore helped lift BHP 0.6 per cent, Fortescue Metals 1.03 per cent and Rio Tinto 0.52 per cent. Telstra and Transurban both put on 0.28 per cent.
An on-going revival in tech stocks briefly lifted the sector to its highest in a month. Buying interest in the sector has been stoked by a decline in borrowing costs. The yield on ten-year Australian government bonds dropped almost four basis points this afternoon to its lowest since February.
Nanosonics climbed 4.72 per cent, EML Payments 2.44 per cent and Afterpay 1.69 per cent. Altium was a major drag, falling 7.5 per cent two days after rejecting a takeover offer from US multinational Autodesk. WiseTech shed 4.04 per cent. Appen gave up 3.9 per cent.
Building products and investment firm Brickworks was the index’s best performer, jumping 11.32 per cent after forecasting record earnings from its property investments. The company expects property earnings to hit $240 – $260 million, thanks to growth in the value of its property trust. Building products earnings are expected to be higher both at home and in North America.
A positive week for Austal continued with news the shipbuilder won a US$44 million contract to design, produce and demonstrate an expeditionary fast transport vessel for the US Navy. The contract win is the second the company has secured from the US Navy this week. Shares climbed 0.43 per cent.
Travel and tourism stocks extended yesterday’s rebound as Victoria prepared to loosen restrictions. Corporate Travel Management rose 2.38 per cent, Webjet 1.56 per cent and Flight Centre 1.23 per cent.
Doghouse
Weakening borrowing costs – a plus for borrowers – weighed on lenders. The big four banks faded as bond yields declined. CBA shed 0.39 per cent, NAB 0.78 per cent. Westpac 0.67 per cent and ANZ 0.1 per cent. Macquarie Group dropped 1.31 per cent.
Supermarkets Coles and Woolworths gave up 1.99 and 1.89 per cent, respectively.
Gold‘s failure to hold its latest assault on US$1,900 dragged Evolution Mining down 2.78 per cent, Resolute 2.75 per cent, Regis 2.66 per cent and Newcrest 0.69 per cent.
Perenti Global faded 2.21 per cent after the mining services company announced a major long-term contract win in Africa. Perenti said it will provide open pit services at Sandfire’s Motheo copper project in Botswana. The contract is for seven years and three months and has a value of around $648 million.
Other markets
China’s Shanghai Composite was an outlier during a generally downbeat session on Asian markets, rising 0.21 per cent. The Asia Dow shed 0.53 per cent, Hong Kong’s Hang Seng 0.25 per cent and Japan’s Nikkei 0.31 per cent.
US futures marked time. S&P 500 futures were recently off less than a point or 0.01 per cent.
Oil built on last night’s two-year high. Brent crude rallied 33 cents or 0.46 per cent to US$72.55 a barrel.
Gold eked out a rise of 60 cents or 0.03 per cent at US$1,895 an ounce.
The dollar edged up 0.03 per cent to 77.39 US cents.
