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Soaring commodity prices and progress towards suppressing the latest Covid outbreak in NSW helped the share market reverse most of yesterday’s losses.
The S&P/ASX 200 rallied 24 points or 0.34 per cent by mid-session, recouping most of yesterday’s 34-point loss. Today’s advance, the fourth in five sessions, lifted the index back towards Wednesday’s 14-month closing high.
Bulk metals miners rose after iron ore hit a new high and copper reached its strongest level in a decade. The technology sector slumped towards a sixth straight loss amid worries about the impact of inflationary pressures on valuations.
What’s driving the market
The market briefly extended its gains after NSW reported no locally-acquired cases, raising hopes Covid restrictions reintroduced on Greater Sydney yesterday will prove fleeting. NSW Premier Gladys Berejiklian earlier said she was “very pleased with how things are going”.
Travel stocks that sold off yesterday after the NSW government announced the restrictions rebounded. Flight Centre rallied 4.43 per cent, Corporate Travel Management 3.81 per cent, Webjet 3.48 per cent and Qantas 1.05 per cent.
Iron ore producers rose after China’s latest diplomatic salvo at Australia helped drive the price of ore to new heights. The spot price for ore landed in China jumped 5.2 per cent yesterday to US$202.65 a tonne after China suspended its participation in the China-Australia Strategic Economic Dialogue.
“China’s decision to indefinitely suspend economic dialogue with Australia, which is by far the largest source of iron ore for the country, delivered a significant push to iron ore prices, with its price exceeding US$200 a tonne. Record profit margins at Chinese steel mills coupled with insatiable demand and ongoing supply concerns are bending towards a further uptick in iron ore prices in the near term,” Kalkine Group CEO Kunal Sawhney said.
Fortescue Metals rose 0.9 per cent, Rio Tinto 0.58 per cent and BHP 0.33 per cent. Gold giant Newcrest put on 3.61 per cent after gold regained the U$1,800 level for the first time since February.
Optimism about the improving economy was bolstered by an 18-year high in the Australian Industry Group’s gauge of services sector activity. The Performance of Services Index climbed to 61 last month, the strongest reading since October 2003.
“Not the most important indicator but another sign of a strong growth outlook. RBA will end its bond buying soon – good chance for interest rate hikes next year,” economist Stephen Koukoulas tweeted.
The Reserve Bank upgraded its economic outlook, as flagged on Tuesday. The bank now expects GDP to grow 4.75 per cent this year and 3.5 per cent next year. Unemployment is expected to fall to 5 per cent by year-end and 4.5 per cent by mid-2023. Underlying inflation is not expected to pass 1.5 per cent this year before “gradually increasing to close to 2 per cent by mid 2023”.
Upbeat economic data gave Wall Street a boost overnight. The Dow climbed 318 points or 0.93 per cent to a record after a larger-than-expected drop in claims for unemployment benefits signalled the potential for an upside surprise in tonight’s April jobs report. The S&P 500 gained 0.82 per cent.
Going up
Macquarie Group pushed towards all-time highs after unveiling a 10 per cent increase in full-year net profit to $3.015 billion. The financial services giant raised its dividend to a fully-franked $3.35 per share, almost twice last year’s payment of $1.80. Shares edged up 0.17 per cent to $159.27, within $3 of last week’s record.
“Macquarie’s businesses continued to perform well despite challenging market condition,” Managing Director and Chief Executive Officer, Shemara Wikramanayake, said.
The big four advanced in lockstep at the end of a week of broadly positive earning updates. CBA climbed 1.04 per cent to a six-year high. ANZ put on 0.58 per cent, NAB 1 per cent and Westpac 0.63 per cent.
News Corp marched up 4.3 per cent after CEO Robert Thomson forecast this financial year will be the strongest since the media group split in two in 2013. Third-quarter revenues increased by 3 per cent to $2.34 billion.
“The financial year is on a trajectory to be the most profitable since our reincarnation in 2013. This highlights the transformed character of the Company, with improved revenue performance and a 23 percent increase in profitability in the third quarter,” Mr Thomson said.
Tabcorp climbed 1.8 per cent to a three-year high after US investment firm Apollo Management entered the bidding war for the gaming group’s wagering and media business. Apollo matched UK bookie Entain’s $3.5 billion offer for the assets and threw down an alternative offer of $4 billion for the assets plus Tabcorp’s gaming services business.
An 8 per cent year-on-year increase in Q3 revenues helped lift REA Group 2.22 per cent. The online real estate listings group said earnings increased 13 per cent, fuelled by a booming property market.
Going down
A week to forget for investors in tech stocks continued with a sixth straight decline. Rampant commodity prices are a two-edged sword: a plus for miners but a negative for other sectors because of their inflationary implications. Tech stocks are seen as particularly vulnerable to reflation because their valuations depend so heavily on future earnings.
Afterpay plunged 5.94 per cent to its weakest level since November. Shares that traded at $160 in February hit $92.18 this morning. Nuix lost 3.24 per cent, Xero 2.91 per cent, WiseTech 2.57 per cent and Altium 1.85 per cent. Appen bounced 5 per cent, recouping some of yesterday’s 21.1 per cent dive.
Besides Afterpay, other losses at the heavyweight end of the market included CSL-0.47 per cent, Transurban -0.85 per cent and Brambles -0.24 per cent.
Other markets
Asian markets followed Wall Street higher. The Asia Dow added 0.48 per cent. China’s Shanghai Composite tacked on 0.26 per cent, Hong Kong’s Hang Seng 0.66 per cent and Japan’s Nikkei 0.28 per cent. S&P 500 futures edged up six points or 0.13 per cent.
Gold inched up another 40 cents or 0.02 per cent to US$1,816.10 an ounce. Brent crude dipped a cent or 0.01 per cent to US$68.08 a barrel.
The dollar pared an overnight commodity-fuelled up-swing, retreating 0.16 per cent to 77.74 US cents.
