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Australian shares pared their first rise in four sessions after an unexpected fall in unemployment sharpened the odds on more interest rate increases.  

The S&P/ASX 200 trimmed an early advance of 19 points to ten points or 0.14 per cent after the economy created twice as many jobs as expected last month.

Tech and defensive stocks provided much of the morning’s upside. Resource stocks fell with the prices of crude oil and metals as Chinese Covid numbers climbed.

What’s driving the market

A tentative rally lost momentum after ABS data showed the jobless rate fell to 3.4 per cent last month from 3.5 per cent as the economy created an additional 32,200 jobs. The rise in employment was more than twice the 15,000 gains expected.

Some economists had tipped the unemployment rate to tick higher as interest rate hikes started to bite. The October reading matched the July jobless rate, the lowest since the 1970s. Male unemployment fell to 3.2 per cent, a level last seen in November 1974.

“The Reserve Bank of Australia will be mindful of these figures given that wages growth was also higher than expected and recent inflation numbers are above their appetite,” Peter Esho, economist at property investment platform Wealthi, said.

“There is a growing risk for a 50bpts hike, however, we don’t think the RBA will shift away from its 25bpts increase stance. Instead, it might have another one or two rate rises in the bag before it stops,” he added.

If there was a positive for investors hoping for a pause in interest rates, it was that employment growth has slowed in recent months.

“While employment has continued to grow, the rate of growth has slowed to below the longer-term average. It has been below this average for the past 5 months,” Bjorn Jarvis, head of labour statistics at the ABS, said.

Nonetheless, AMP’s chief economist, Shane Oliver, expects the RBA to raise again next month.

“While the jobs market is showing some signs of cooling, the strength in jobs in October & the further fall in labour underutilisation, which points to a further acceleration in wages grth, makes it hard to see the RBA pausing next mth. We expect another 0.25% cash rate hike in Dec,” Oliver tweeted.

This morning’s rally broke a run of losses since the start of the week. The ASX has drifted lower as investors catch their breath and await fresh catalyst after three weeks of strong gains. The ASX 200 surged 194 points last Friday to its highest level since June.

Overnight, the S&P 500 sagged 0.83 per cent as investors tried to square unexpectedly strong retail sales growth with a grim forecast from Target.

US futures firmed this morning after the Republican Party regained control of the House of Representatives. The GOP this morning reached the 218-seat majority it needed for victory.

Financial markets rallied earlier in the month on the prospect of a split government making it harder for the White House to pass legislation. S&P 500 futures were lately up eight points or 0.21 per cent.

Going up

Online travel agent Webjet soared 8.1 per cent on news first-half bookings were back to pre-pandemic levels. Bookings of 3.4 million were up 137 per cent on the same period last year and 101 per cent of pre-pandemic levels.

“This result demonstrates a spectacular turnaround of $88.4 million in underlying EBITDA from the 1H22 loss of $15.9 million. It underpins the efforts we took as soon as the pandemic hit to ensure each business was optimally positioned to recapture demand once travel returned,” Managing Director John Guscic said.

Altium firmed 3.26 per cent after reaffirming full-year revenue guidance of US$255-$265 million. The software maker expects underlying earnings margins of 35-37 per cent.

Job-search platform SEEK told shareholders at today’s AGM it was on track to meet full-year guidance as Asian revenues track ahead of expectations. The share price firmed 1.17 per cent.

An 82 per cent jump in October sales revenue lifted Cettire 2.69 per cent. The online luxury goods retailer said revenues expanded to $34.8 million last month from $19.2 million in the same month last year. Adjusted earnings for the first four months of the fiscal year were “at least $8.5 million”.

A downturn in revenues as Covid tailwinds subsided helped drag Sonic Healthcare lower before a mid-morning recovery. The diagnostics firm said total revenues declined 11.7 per cent over the four months to October, due in part to lower testing volumes. The share price hit a three-week low before bouncing 0.22 per cent.

Investors turned to traditional defensive plays after last night’s US decline. Bega Cheese gained 2.72 per cent. Cleanaway Waste firmed 2.66 per cent. Among the majors, Coles put on 2 per cent, Wesfarmers 1.4 per cent and Woolworths 1.26 per cent.

Going down

Perpetual plunged 14.72 per cent after a court found the fund manager could be liable for more than a $23 million break fee if a proposed merger with Pendal does not proceed. Perpetual has been subject to recent takeover interest from a consortium including Regal Partners since the proposed merger was announced. Shares in Pendal jumped 7.74 per cent on the ruling.

The exchange operator, ASX Ltd, fell 1.11 per cent after writing off up to $255 million on a botched attempt to update its ageing system for managing share transactions. The company announced it had paused the CHESS replacement project after an independent report identified “significant issues” with the new software.

A report by Accenture said the application software was only 63 per cent complete and faced scalability and stability challenges due to its complexity. ASX will take a first-half charge of $245-$255 million. The company will continue to use the CHESS system while it explores the design of a replacement.

Australian Agricultural Company eased 3.5 per cent after improved meat prices and higher margins helped offset a drop in sales volumes in the first half. The cattle company reported a half-year profit of $38.3 million, up from $30 million in the prior corresponding period. Operating profit margin expanded by 250 basis points to 23.4 per cent.  

Earthmover Emeco slid 3.36 per cent after warning shareholders the financial performance of its Pit N Portal business had been “deeply disappointing”. The firm said it had taken measures to lift earnings in the second half.

Adore Beauty dipped 0.57 per cent after announcing the former CEO of Best Friends Pets and My Pet Warehouse, Tamalin Morton, will replace Tennealle O’Shannessy as CEO.

In other leadership news, Dan Lougher will take over from Craig Jetson as CEO and Managing Director of gold miner St Barbara. Lougher was most recently CEO and MD at nickel miner Western Areas. St Barbara’s share price firmed 2.54 per cent.

Other markets

A red morning on Asian markets saw the Asia Dow lose 0.49 per cent, China’s Shanghai Composite 0.29 per cent, Hong Kong’s Hang Seng 1.01 per cent and Japan’s Nikkei 0.12 per cent.

Oil continued to lose ground as China’s Covid outbreak muddied the demand outlook. Brent crude fell 77 US cents or 0.8 per cent to US$92.09 a barrel.

Gold was little changed, down 30 US cents or 0.02 per cent to US$1,775.50 an ounce.

The dollar was broadly steady at 67.39 US cents.

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