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The share market extended its record run into a sixth session before shedding most of its gains as a surge in Chinese producer prices fuelled global inflation concerns.
The S&P/ASX 200 put on as much as 42 points before fading to neutral mid-session. The index hit a fresh high at 7334.9 ahead of the retreat. The index has broken new ground each session since last Wednesday.
Afterpay, BHP and Fortescue Metals were the pick of the heavyweights, with support from Aristocrat, Transurban and Telstra. Falling borrowing costs weighed on lenders.
What’s driving the market
The Australian market has temporarily broken its dependence on Wall Street for direction, forging higher while US stocks tread water. The arrival of the northern summer holiday season has drained any lingering momentum from Wall Street following a choppy northern spring.
“US stocks have largely been stuck in a range since mid-April and don’t seem likely to be breaking out anytime soon,” Edward Moya, senior market analyst at Oanda, said. “Investors want to see how hot pricing pressures get and how much downside in equities will occur once the Fed’s taper tantrum begins.”
Overnight, the S&P 500 finished near flat for a second session. The Dow eased 0.09 per cent and the Nasdaq added 0.31 per cent as falling bond yields encouraged traders into growth stocks.
“US treasury yields plunged to their lowest level in more than a month after softer-than-anticipated jobs data put inflation worries to rest for some time. The US job openings surged by about one million to a record high level in April 2021, strengthening the notion that a recent moderation in job growth resulted from supply constraints,” Kalkine Group CEO Kunal Sawhney said.
“As inflation fears receded to some extent, concerns about early tapering of the US Federal Reserve’s monetary support took a breather, encouraging investors’ rotation into growth stocks like technology shares,” he added.
Domestic buying interest was boosted by news Covid restrictions in Victoria will ease tomorrow night after the state recorded just one new case yesterday. Greater Melbourne will move to the settings currently in place in regional Victoria, while regional Victoria will adopt looser measures.
Inflation worries were briefly soothed by a dip in consumer sentiment and confirmation the Reserve Bank does not expect inflation to reach its target range until 2024. The market shed its gains after a jump in Chinese producer prices reignited concerns about the global picture.
Westpac’s consumer confidence index dropped 5.2 per cent this month to 107.2 from 113.1 last month. The decline extends the index’s decline to almost 10 per cent in two months.
“The latest fall in June is almost certainly due to concerns around the two-week lockdown in Melbourne. The survey was conducted during the first week of the lockdown,” Westpac Chief Economist Bill Evans said.
“The index is now back at the level we saw back in January when the country was impacted by significant lockdowns in parts of Sydney and Queensland.”
Reserve Bank Assistant Governor Christopher Kent said the bank’s pandemic emergency measures had helped the economy emerge from the crisis in good shape, but inflation will take at least another two and a half years to reach its target.
“There are good prospects for growth and an eventual increase in wages and inflation,” he told a summit this morning. “We anticipate that will be a gradual process, with inflation unlikely to be sustainably within the target range of 2−3 per cent until 2024 at the earliest.”
Chinese producer prices soared 9 per cent last month, their biggest year-on-year gain since 2008. The jump reflects soaring input costs from commodity price gains.
Going up
An on-going revival in tech stocks briefly lifted the sector to its highest in a month. Buying interest in the sector has been stoked by a decline in borrowing costs. The yield on ten-year Australian government bonds dropped almost four basis points this morning to its lowest since February.
Nanosonics climbed 5.28 per cent, EML Payments 3.66 per cent and Afterpay 2.05 per cent. BNPL players Zip Co and Splitit added 1.46 and 2.46 per cent, respectively.
A 3.7 per cent advance in iron ore helped lift BHP 1.07 per cent, Fortescue Metals 0.58 per cent and Rio Tinto 0.32 per cent. Telstra put on 0.56 per cent, Transurban 0.42 per cent and CSL 0.06 per cent.
Building products and investment firm Brickworks was the morning’s best performer, jumping 8.37 per cent after forecasting record earnings from its property investments. The company expects property earnings to hit $240 – $260 million, thanks to growth in the value of its property trust. Building products earnings are expected to be higher both at home and in North America.
A positive week for Austal continued with news the shipbuilder won a US$44 million contract to design, produce and demonstrate an expeditionary fast transport vessel for the US Navy. The contract win is the second the company has secured from the US Navy this week. Shares climbed 0.65 per cent.
Travel and tourism stocks extended yesterday’s rebound as Victoria prepared to loosen restrictions. Corporate Travel Management rose 4.38 per cent, Webjet 2.73 per cent and Flight Centre 2.03 per cent.
Shares in Perenti Global rose 0.74 per cent after the mining services company announced a major long-term contract win in Africa. Perenti said it will provide open pit services at Sandfire’s Motheo copper project in Botswana. The contract is for seven years and three months and has a value of around $648 million.
Going down
Weakening borrowing costs are a plus for borrowers, a negative for lenders. The big four banks wavered as bond yields declined. CBA shed 0.22 per cent, NAB 0.56 per cent and Westpac 0.41 per cent. Macquarie Group dropped 1.36 per cent. ANZ bounced 0.24 per cent.
Supermarkets Coles and Woolworths gave up 1.4 and 1.17 per cent, respectively.
Gold‘s failure to hold its latest assault on US$1,900 dragged Evolution Mining down 2.38 per cent, Regis 1.9 per cent and Newcrest 0.79 per cent.
Other markets
China’s Shanghai Composite was an outlier during a generally downbeat morning on Asian markets, rising 0.27 per cent. The Asia Dow shed 0.42 per cent, Hong Kong’s Hang Seng 0.06 per cent and Japan’s Nikkei 0.33 per cent.
US futures marked time. S&P 500 futures were recently off less than a point or 0.02 per cent.
Oil built on last night’s two-year high. Brent crude rallied 23 cents or 0.32 per cent to US$72.45 a barrel.
Gold eased 40 cents or 0.02 per cent to US$1,894 an ounce.
The dollar edged up 0.06 per cent to 77.41 US cents.
