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Aussie stocks roared back from yesterday’s sell-off as investors snapped up cyclical stocks best placed to benefit from an improving economy.
The S&P/ASX 200 bounced 104 points or 1.44 per cent to 7340, recouping the bulk of yesterday’s 134-point fall.
Oil companies, banks and miners led the recovery. Defensive health stocks retreated.
What’s driving the market
A relief rally swept US and European markets higher overnight following Wall Street’s worst week since October. The Dow bounced 1.76 per cent. The S&P 500 rose 1.4 per cent. The pan-European Stoxx 600 added 0.7 per cent.
“The rally back in equities has been fierce with the S&P500 now just 1% off its all-time record high set on June 14th ,” NAB Director, Economics, Tapas Strickland, said. ” There has been a clear rotation back into the reflation trade with Financials (+2.4%) and Energy (+4.3%) outperforming, while the small cap Russell 2000 also bounced strongly by 2.2%. The rebound in equities is also mirrored in commodities.”
The rally preceded congressional testimony tonight from Jerome Powell. The Federal Reserve’s Chair is expected to soothe market jitters following last week’s rates tantrum on Wall Street. Remarks published this morning indicated Powell will stick to the Fed line that inflation will peak this year before easing back towards the bank’s long-term target.
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.”
Going up
The energy and materials sectors fronted this morning’s rebound following an overnight recovery in commodities as the US dollar retreated. Crude and metals all advanced.
Woodside Petroleum put on 1.93 per cent, BHP 1.78 per cent, Fortescue Metals 1.92 per cent and Rio Tinto 1.26 per cent.
Commonwealth Bank rebounded 2.44 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 1.92 per cent, NAB 0.87 per cent and Westpac 1.66 per cent.
Telstra advanced 2.41 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 1.42 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 1.59 per cent.
A strong morning for lithium stocks saw Pilbara Minerals advance 7.04 per cent and IGO Limited 6.29 per cent. IGO is in the process of forming a new lithium joint venture with Tianqi Lithium.
Going down
CSL was one of only two heavyweights of the ASX 20 to decline, falling 1.07 per cent as traders favoured stocks with better exposure to the economic cycle.
Gold miner Newcrest faded 0.5 per cent during a mixed session for the sub-sector. Westgold dropped 2.97 per cent. Gold Road Resources eased 0.36 per cent
Some of yesterday’s best performers took a breather. Z1p Co fell 1.89 per cent. Appen dipped 1.33 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 0.69 per cent. Webjet shed 0.58 per cent. Sydney Airport added 0.14 per cent and Qantas 1.28 per cent.
Other markets
Most Asian markets recouped some of yesterday’s heavy losses. The Asia Dow rallied 1.33 per cent, China’s Shanghai Composite 0.62 per cent and Japan’s Nikkei 2.76 per cent. Hong Kong’s Hang Seng eased 0.01 per cent.
US futures inched higher. S&P 500 futures improved five point or 0.12 per cent.
Oil continued to test levels last seen in 2018. Brent crude climbed 16 cents or 0.21 per cent to US$75.06 a barrel.
Gold added to its overnight rebound, rising $3.70 or 0.21 per cent to US$1,786.60 an ounce.
The dollar eased 0.17 per cent to 75.19 US cents.
