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The share market touched a five-month high before shedding its gains as a decline in US futures undermined a China-fuelled rally in resource stocks.
The S&P/ASX 200 rallied to within four points of 7200 for the first time since June. At the halfway mark, the Australian benchmark was down three points or 0.04 per cent at 7157 after trading as high as 7196.5.
Miners and energy producers set the pace following pro-growth developments in China at the end of last week. Supermarkets, healthcare providers and other traditional defensive assets fell as traders rotated into sectors with more upside in a recovery.
What’s driving the market
Commodity prices jumped after China loosened quarantine restrictions and announced support for its troubled property market. Iron ore, coal, crude and industrial metals all rose in anticipation of improved demand if the Chinese economy regains momentum.
“Beijing announced that travellers into China would only need to spend five days in hotel quarantine, followed by three days confined to home. This was down from 10 days and a week respectively. Penalties on airlines bringing virus cases into the country will also be scrapped,” ANZ’s senior commodity strategist Daniel Hynes said.
“The market took this as the first step towards abolishing its zero-COVID strategy, raising hopes of a demand recovery in the world’s second biggest economy.”
Bulk metal producers led today’s advance as iron ore prices continued to recover. January ore climbed 3.9 per cent this morning on the Dalian Commodity Exchange.
The rally lost momentum following a warning from a Federal Reserve official that Wall Street got ahead of itself with its euphoric response to last week’s October inflation data. The S&P 500 surged 5.9 per cent last week amid hopes a slowdown in inflation would allow the central bank to take its foot off the interest rate accelerator.
Fed Governor Chris Waller this morning suggested the market had over-reacted.
“The market seems to have gotten way out in front over this one CPI report. So it’s good, finally that we saw some evidence of inflation starting to come down, but I just cannot stress this is one data point,” Waller told a Sydney conference. “We’re going to need to see a continued run of this kind of behaviour.
“Everybody should just take a deep breath, calm down,” he added. “We’ve got a long, long way to go to get inflation down.”
US futures turned lower in the wake of Waller’s remarks. S&P 500 futures pulled back nine points or 0.23 per cent.
Going up
Fortescue Metals soared 9.23 per cent to a ten-week high as iron ore prices took wing. BHP rallied 4.56 per cent. Rio Tinto put on 3.97 per cent. Champion Iron added 10.77 per cent.
Lithium and gold were also strong. Core Lithium advanced 11.08 per cent, Sandfire Resources 5.52 per cent and De Grey 5.49 per cent.
A revenue upgrade lifted mining services provider Perenti 5.29 per cent to an 18-month high. The company said it expects full-year revenue of $2.6-$2.7 billion, up from previous guidance of $2.4-$2.5 billion.
Warrego Energy rallied 16.67 per cent after agreeing to be acquired by Beach Energy. Beach said the acquisition was “strategically compelling” and complemented the firm’s growth strategy in the Perth basin. Beach shares firmed 1.14 per cent.
Woodside Energy climbed 1.05 per cent following Friday’s 2.5 per cent rise in Brent crude.
Tambourah Metals surged 45.16 per cent after rock sampling confirmed lithium-bearing pegmatites at the explorer’s RJ 101 project.
Biotech Immutep gained 1.59 per cent after receiving a $986,286 cash rebate from the federal government’s research and development tax incentive program.
Graphite miner Syrah Resources was unchanged after announcing production would resume at its flagship Balama mine in Mozambique following a security scare.
Going down
Agribusiness Elders dived 17.36 per cent following a downbeat crop forecast and news CEO and Managing Director Mark Allison will stand down. The company reported a 42 per cent jump in underlying full-year profit, but warned extreme rainfall in the east threatened to impact summer and winter harvests. Cattle and sheep prices were expected to soften.
Travel agent Flight Centre dipped 3.5 per cent after declining to provide full-year guidance at today’s AGM. Managing Director Graham Turner said it was “difficult to accurately predict a full year outcome at this relatively early stage,” but profits were expected to grow as demand for travel recovered.
Takeover target Perpetual eased 5.34 per cent ahead of a court decision on Wednesday over a potential merger with Pendal.
Aerial mapping group Nearmap dropped 0.97 per cent after warning of possible customer churn amid economic uncertainty and higher inflation and interest rates.
The big four banks lost between 0.38 and 1.7 per cent. Telstra sagged 3.62 per cent, Transurban 2.44 per cent, Wesfarmers 1.92 per cent and Coles 1.68 per cent.
Other markets
Chinese stocks continued to outperform. Hong Kong’s Hang Seng bolted 3.39 per cent. The Shanghai Composite added 0.95 per cent. The Asia Dow dipped 0.08 per cent. Japan’s Nikkei shed 0.4 per cent.
Oil recouped some of last week’s 2.6 per cent decline. Brent crude rallied 63 US cents or almost 0.7 per cent to US$96.62 a barrel.
Gold backed off Friday’s close, the strongest since August. The yellow metal reversed US$3.90 or 0.22 per cent to US$1,765.50 an ounce.
The dollar slipped back under 67 US cents, easing 0.02 per cent to 66.93 US cents.
