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The share market climbed for a third day, adding to gains after the Reserve Bank appeared to open the door to a rate rise next year.
The S&P/ASX 200 sealed its longest winning run in more than a month with an advance of 69 points or 0.95 per cent.
The RBA left the cash rate on hold, as expected, but adjusted its policy statement to allow for a possible increase before 2023.
Travel stocks rebounded after the White House’s medical expert talked down the risk from the omicron Covid variant. The speculative end of the market also recovered.
What moved the market
The Dow’s best session since March set up the local market for its biggest rise since omicron was identified. The US blue-chip average climbed 1.87 per cent. The broader S&P 500 put on 1.17 per cent.
Concerns over the economic impact of the omicron Covid variant temporarily subsided after White House medical advisor Dr Anthony Fauci said its symptoms appeared to be less severe than those of previous variants.
“The markets are dialing back on the potential economic damage that Omicron could cause as initial reports suggest that the new COVID variant is less severe,” Fiona Cincotta, senior financial market analyst at City Index, said.
The market added to gains after the Reserve Bank tweaked its forward guidance on rates. The bank dropped any reference to underlying inflation running no hotter than 2.5 per cent in 2023. The change followed a policy shift in the US last week, where the Federal Reserve acknowledged inflationary pressures could no longer be discounted as “transitory”.
“Small crack open for possible 2022 move – provided wages growth lifts!” tweeted BetaShares’ chief economist David Bassanese.
RBA Governor Philip Lowe said the board was unconcerned about inflationary pressures while wages growth remained subdued. He said the board was prepared to be patient before raising official rates.
“While inflation has picked up, it remains low in underlying terms. Inflation pressures are also less than they are in many other countries, not least because of the only modest wages growth in Australia,” he said.
AMP‘s chief economist Shane Oliver said he expected the bank to reduce its stimulatory asset-buying program at its next meeting in February. The first increase to official rates would follow next November.
The dollar climbed further away from Friday’s 13-month low. The Aussie was lately up 0.3 per cent at 70.71 US cents. The yield on ten-year government bonds rallied almost six basis points to 1.652 per cent.
Winners’ circle
Travel and tourism stocks hit multi-month lows when omicron news first broke. A healing session today saw several companies rally to their highest since the variant was identified.
Corporate Travel Management gained 5.69 per cent, Flight Centre 5.68 per cent, Qantas 3.82 per cent and Webjet 4.51 per cent.
Speculative stocks outperformed a day after entering a technical correction. The S&P/ASX Emerging Companies Index bounced 2.23 per cent. The rally reversed more than half of yesterday’s tumble.
Oil Search climbed 3.53 per cent after shareholders backed a merger with Santos. If approved by PNG’s National Court of Justice, the merger will create one of the world’s 20 largest oil and gas producers. Santos shares gained 2.02 per cent.
Bank of Queensland firmed 4.21 per cent after reconfirming full-year guidance. CEO and Managing Director George Frazis told today’s AGM the bank expects 2 per cent “positive jaws”, meaning gross income growth will exceed expense growth.
IAG used a Business Update for investors to reaffirm full-year margin and premium guidance. The insurer aims to deliver a return on equity of 12-13 per cent and an insurance margin of 15-17 per cent. The share price rose 1.4 per cent.
Junior biotech Neuren Pharmaceuticals almost doubled in value following positive results from a Phase 3 trial of the firm’s experimental treatment for Rett syndrome. CEO Jon Pilcher said regulatory approval of trofinetide in the US would generate revenue of $111 million, plus royalties in 2022 and 2023. The firm’s shares finished 91.18 per cent higher after earlier rising more than 100 per cent.
Z1P Co clambered 9.91 per cent off a 19-month low after another record month. The BNPL company reported fresh highs in transaction volumes and customer numbers.
Doghouse
Heavyweight drags on the index included toll road operator Transurban -0.72 per cent and property giant Goodman -0.04 per cent.
Iluka Resources shed 1.36 per cent, Nickel Mines 4.3 per cent and Lynas Rare Earths 3.15 per cent. Other notable drags included exchange operator ASX -2.76 per cent and NIB -2.02 per cent.
Fund manager Magellan fell 6.37 per cent to its lowest since February 2019 following the resignation of CEO Dr Brett Cairns for “personal reasons”. Long-serving Chief Financial Officer Kirsten Morton will act up until a replacement is found.
A decline in funds under management (FUM) pulled GQG Partners down 1.69 per cent. The asset manager reported FUM declined to $87.3 billion last month from $90.4 billion at the end of October. GQG was one of this year’s most keenly-anticipated floats.
Online ads business Carsales eased 1.76 per cent after reaffirming its full-year outlook at today’s Investor Day.
Other markets
Most Asian markets rebounded strongly. The Asia Dow gained 1.65 per cent, China’s Shanghai Composite 0.12 per cent, Hong Kong’s Hang Seng 1.46 per cent and Japan’s Nikkei 2.09 per cent.
US futures also rose. S&P 500 futures were ahead 15 points or 0.33 per cent at the Australian market close.
Oil added to last night’s 4.6 per cent surge. Brent crude firmed 58 US cents or 0.8 per cent to US$73.66 a barrel.
Gold eased US$1.60 or 0.1 per cent to US$1,777.90 an ounce.
