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A choppy morning saw the ASX overcome an early wobble to advance for the first time in three sessions as bond proxies and banks rallied.
The S&P/ASX 200 put on as much as 36 points in early action, then briefly turned negative before rising again to a mid-session gain of 29 points or 0.41 per cent.
Advances in Newcrest, supermarkets and the banks kept the rally on track. Fortescue Metals and Rio Tinto declined with Telstra and Woodside.
What’s driving the market
An overnight rebound on Wall Street was clouded by a decline in US futures this morning. S&P 500 futures faded five points or 0.13 per cent as doubts persisted over the outlook for equities amid Covid spikes in many parts of the planet. Overnight, the US benchmark rebounded from two days of selling, rising 0.93 per cent.
“‘Buy the dip’ mentality appears to be back in equities with little else to explain the 0.9% rise in the S&P500 overnight following two days of decline. Notably a tilt back to cyclicals has occurred with the Russell 2000 +2.4% after yesterday’s sharp fall of -2.0%,” NAB Director of Economics Tapas Strickland said.
Domestic buying interest may also have been blunted by the threat of economic retaliation after the federal government nixed Victoria’s “Belt and Road” deal with China under a new national interest law. The Chinese embassy warned the decision further inflamed tensions between the countries.
“This is another unreasonable and provocative move taken by the Australian side against China,” a spokesperson for the embassy said. “It further shows that the Australian government has no sincerity in improving China-Australia relations. It is bound to bring further damage to bilateral relations, and will only end up hurting itself.”
Mining stocks dependent on Chinese demand retreated. Lithium miner Pilbara Minerals fell 8.8 per cent, Lynas Rare Earths 4.06 per cent and Fortescue Metals 1.62 per cent. Rio Tinto shed 0.26 per cent. BHP edged up 0.04 per cent.
The dollar inched higher after a survey showed business confidence and conditions running well above long-term averages last quarter. The Aussie edged up 0.04 per cent to 77.57 US cents.
“The survey suggests that the economic recovery built further momentum in Q1,” NAB chief economist Alan Oster said.
Going up
A retreat in bond yields channelled fund flows towards traditional bond alternatives. The ten-year Australian yield dropped three basis points this morning to 1.656 per cent. Supermarkets Coles and Woolworths rallied 1.86 and 0.97 per cent, respectively. Goodman Group gained 0.26 per cent, CSL 0.46 per cent and APA Group 0.4 per cent.
A two-month high in gold lifted Newcrest 2.32 per cent, Westgold 5.29 per cent and Northern Star 5.57 per cent.
Megaport was the index’s best performer, climbing 7.09 per cent after confirming it expects to reach break-even by June. The networking service provider increased monthly recurring revenue by 10 per cent last quarter and revenue by 5 per cent.
The banks accounted for some of the morning’s volatility. CBA led the recovery, rising 0.88 per cent. ANZ edged up 0.19 per cent, NAB 0.06 per cent and Westpac 0.28 per cent.
Going down
The surprise departure of CEO Brett Redman drove AGL Energy to its lowest level in more than 15 years. Redman resigned after 15 year with the company, the last two and a half as chief executive and Managing Director. Chair Graeme Hunt will act in the role until a replacement is found. The business is in the midst of a major restructure. The share price sank 1.66 per cent to a level last seen in December 2004.
News of significant cash outflows helped send AMP down 4.08 per cent to a 12-month low. While assets under management increased by $1.6 billion over the quarter, traders were more concerned by outflows of $1.5 billion from the wealth management business and $1.3 billion from AMP Capital.
Woodside dipped 1.42 per cent in a tough market for energy companies despite raising Q1 revenues by 4 per cent to $1.21 billion. Poor weather helped push production down 2 per cent from the same quarter last year.
Santos also reported a 2 per cent drop in quarter-to-quarter production. The company cited as causes weak domestic gas demand in WA and unplanned maintenance in Papua New Guinea. The share price eased 0.86 per cent.
Australian Pharmaceutical Industries (API) overcame early weakness after reporting a 29.3 per cent dive in half-year net profit due to the lingering impact of Covid. The Priceline operator was lately trading flat after reaffirming full-year guidance.
“These results reflect the impact of pandemic-related lockdown restrictions and lower CBD foot traffic on API’s retail businesses in Australia and New Zealand compared to the pcp [previous corresponding period], which was unaffected by COVID. Priceline Pharmacy’s like-for-like sales were down significantly in its two largest CBDs with Melbourne down by 65% and Sydney down by 51%,” CEO and Managing Director Richard Vincent said.
Redbubble sank 21.23 per cent after the online marketplace warned of a short-term hit to margins as it targets growth. Revenues have increased 85 per cent so far this year, lifting gross profits 100 per cent to $184 million.
Lynas Rare Earths fell for a third day since reporting a fall in sales revenue due to shipping availabilities. The miner dropped 4.42 per cent to a two-month low.
Other markets
Asian markets followed Wall Street higher. The Asia Dow gained 0.98 per cent. China’s Shanghai Composite inched up 0.02 per cent, Hong Kong’s Hang Seng 0.36 per cent and Japan’s Nikkei 2.1 per cent.
Oil remainder under pressure from demand questions as Covid infection rates increase in parts of Asia. Brent crude fell 47 cents or 0.72 per cent to US$64.85 a barrel.
Gold rose another $2.20 or 0.12 per cent to US$1,795.30 an ounce.
