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The share market reversed all but a fraction of yesterday’s tumble as the global reflation trade resumed.
The S&P/ASX 200 bounced 107 points or 1.48 per cent a day after plunging 134 points to its heaviest loss in a month.
Cyclical stocks recovered as dip-buyers snapped up sectors that bore the brunt of yesterday’s selling. Banks and oil companies outperformed. The defensive healthcare sector missed the upswing.
What moved the market
Global markets rebounded strongly over the last 24 hours as investors bet Federal Reserve Chair Jerome Powell will use a congressional appearance tonight to douse fears US interest rates will rise as soon as next year.
The Dow Jones Industrial Average bounced 1.76 per cent overnight. The pan-European Stoxx 600 gained 0.7 per cent. In Asia today, Japan’s Nikkei rebounded 3.03 per cent. The Asia Dow put on 1.25 per cent.
Powell is due to testify before the Senate Banking Committee and is expected to take the opportunity to walk back rate expectations. US stocks plunged last week after Fed projections indicated a majority of members expect official rates to rise much sooner than the market consensus.
“We expect that Powell will attempt to impose his assessment that the very strong inflation prints we’ve seen recently will fade and that there are still 9.3 million people unemployed,” ANZ economists wrote.
“We suspect that Powell will be more interested in pushing back against the idea of a 2022 rate rise and ensuring that financial market conditions remain orderly,” they added.
Powell’s opening address, published this morning, gave no indication of a change in the central bank’s timetable. While the Chair noted, “Inflation has increased notably in recent months,” the bank expected the uptick in inflation to be “transitory” and for inflation “to drop back toward our longer-run goal”.
The head of global market strategy at Natixis Investment Managers, Etsy Dwek, said she expected global growth to remain strong as economies continue to recover. Cyclical stocks should outperform.
“We maintain our constructive view in equity markets given ongoing underlying fundamental support: accelerating vaccination, fiscal stimulus, monetary support and strong earnings,” she said. “At the same time, the rotation into cyclicals should keep going, supporting energy, financials, materials, Europe, Japan, and Pacific ex Japan.”
Winners’ circle
The energy and materials sectors were among today’s frontrunners following an overnight recovery in commodities as the US dollar retreated. Crude and metals all advanced.
Woodside Petroleum put on 2.5 per cent, BHP 2.35 per cent, Fortescue Metals 2.61 per cent and Rio Tinto 1.62 per cent.
Commonwealth Bank rebounded 2.21 per cent from yesterday’s horror session. The bank was the biggest drag on the index yesterday, falling 5.43 per cent following a broker downgrade and questions over the sale price of its insurance business.
ANZ gained 2.14 per cent, NAB 1.17 per cent and Westpac 1.76 per cent.
Telstra advanced 2.83 per cent to a 16-month high. The telco has benefitted from stronger margins on mobile plans following the Vodafone-TPG merger. The ACCC opposed the merger on competition grounds.
Engineering group Monadelphous gained 2.13 per cent on news of contract wins in the resources sector worth around $215 million. The contracts include smelter maintenance work at BHP’s Olympic Dam copper mine and several contracts in the Pilbara related to iron ore production.
Investment houses Washington H. Soul Pattinson and Milton Corporation announced they will merge to create a $10 billion ASX powerhouse. Milton’s board has recommended a proposal that values Milton at $6 per share or an enterprise value of almost $4 billion. Milton shares jumped 16 per cent to $5.80. Soul Patts shares edged up 0.83 per cent.
A strong session for lithium stocks saw Pilbara Minerals advance 7.41 per cent and IGO Limited gain 6.21 per cent. IGO is in the process of forming a new lithium joint venture with Tianqi Lithium.
Doghouse
CSL was one of only three heavyweights of the ASX 20 to decline, falling 1.47 per cent as traders favoured stocks with better exposure to the economic cycle. Supermarket Coles dipped 0.12 per cent. Gold miner Newcrest faded 0.12 per cent during a mixed session for the sub-sector.
Some of yesterday’s best performers took a breather. Z1p Co fell 1.58 per cent. Appen dipped 1.79 per cent. Other tech losers included Xero -1.43 per cent, WiseTech -1.19 per cent and Nuix -0.76 per cent.
The travel sector was mixed following news the Bondi Covid cluster blew out to 21 cases in the last 24 hours. Flight Centre dropped 1.39 per cent. Webjet added 0.39 per cent, Sydney Airport 0.34 per cent and Qantas 1.28 per cent.
Other markets
US futures inched higher. S&P 500 futures improved six points or 0.14 per cent.
Oil continued to test levels last seen in 2018. Brent crude climbed 10 cents or 0.13 per cent to US$75 a barrel.
Gold faded $1.80 or 0.1 per cent to US$1,781.10 an ounce.
The dollar eased 0.33 per cent to 75.07 US cents.
