Join our daily newsletter At The Bell to receive exclusive market insights
Shares surged and the dollar dropped after unexpectedly mild inflation data doused fears the Reserve Bank might raise the cash rate ahead of previous guidance.
The S&P/ASX 200 jumped more than 20 points after the data drop, boosting cautious early gains to a mid-session tally of 29 points or 0.41 per cent. The dollar dived around three-tenths of a cent to 77.37 US cents.
What’s driving the market
Worries about inflation were blown away by weaker-than-expected quarterly data. The consumer price index rose a tepid 0.6 per cent over the first three months of the year. Annual growth was 1.1 per cent, well short of the Reserve Bank’s 2 – 3 per cent target range. The bank has previously said it would need to see inflation hold sustainably within that range before it will consider raising rates. Underlying inflation increased 0.3 per cent for the quarter and 1.1 per cent on the year.
“Super weak inflation numbers in Australia: will keep pressure on RBA to ramp-up QE [quantitative easing], which has worked incredibly well thus far…,” tweeted Coolibah Capital Investments fund manager Christopher Joye.
“Underlying price pressures remained soft. Will keep RBA dovish,” AMP Chief Economist Shane Oliver said.
“Annual trimmed mean CPI inflation at 1.1%. A long way back to target!” tweeted BetaShares chief economist David Bassanese.
The market was already ahead, thanks to gains in banks and industrials outweighing declines in miners following a flat night on Wall Street. The S&P 500 dipped less than a point or 0.02 per cent ahead of potential market-moving quarterlies from index heavyweights Microsoft and Alphabet.
US futures were mixed but broadly higher following this morning’s after-market updates. S&P 500 futures gained five points or 0.12 per cent. Nasdaq futures improved 0.17 per cent. Dow futures fell 47 points or 0.14 per cent.
While this morning’s CPI data miss was a setback for dollar bulls, the currency has been well supported this week as iron ore hit an all-time high and copper touched its strongest price in ten years.
“The commodity-linked Australian dollar is showing signs of strength after a record rise in iron ore and copper prices, which recently shoved the currency above USD 78 cents. Going forth, a more robust global economy is expected to rule in favour of the Australian currency as it can harness the benefit of a stronger demand for the Australian exports. However, the lack of fresh yield support from the RBA may prevent the currency on reaching new highs on commodity prices,” Kunal Sawhney, CEO of Kalkine Group, said.
Going up
Rate-sensitive banks pared their gains after the inflation report dampened the prospects for higher margins any time soon. NAB trimmed its advanced to 1.2 per cent, CBA 1.11 per cent and ANZ 0.48 per cent. Westpac edged up 1.02 per cent after settling without liability for $30 million a class action over life insurance policies.
A profit upgrade on strong demand for personal protective equipment lifted Ansell 2.92 per cent to a five-month high. The health and safety protection firm raised its full-year earnings per share guidance to US192 – US202 cents from previous guidance of US160 – US170 cents.
Mirvac also issued an earnings upgrade, citing improved rent collection rates and better-than-expected residential sales and settlements. The property group raised its full-year guidance to 13.7 cents per share from previous guidance of 13.1-13.5 cents per share. The share price rose 3.91 per cent.
Suncorp climbed 0.58 per cent following the sale of its Australian Wealth business to LGIAsuper for around $45 million. Downer EDI climbed 5.64 per cent as it held an Investor Day.
Coles rallied 1.25 per cent as investors looked beyond a 6.1 per cent decline in supermarket sales last quarter as the Covid sales bounce wore off. Liquor and Coles Express sales increased by 2.6 and 7.4 per cent, respectively. Costs relating to Covid were at the lower end of guidance.
Going down
The mining giants were the heaviest drag on the index despite fresh highs in copper and iron ore. Rio Tinto sank 1.11 per cent, BHP 0.17 per cent and Fortescue Metals 0.22 per cent. Gold miner Newcrest sank 2.95 per cent. Afterpay shed 1.43 per cent.
JB Hi-Fi skidded 3.23 per cent to a seven-week low on news Group CEO Richard Murray will leave the retailer to head up Solomon Low’s Premier Investments. Terry Smart, currently Managing Director of The Good Guys, will succeed Murray. Premier Chairman Lew welcomed Murray as “one of the best retailers in Australia”. Premier shares climbed 2.12 per cent.
A warning about the deteriorating Covid situation in Papua New Guinea sent St Barbara down 7.76 per cent to its lowest level in more than a year. The gold miner said it might miss full-year guidance if the outlook deteriorated. The warning dampened enthusiasm over a record month in March.
“To date, due to extraordinary efforts by the Simberi workforce and the corporate support team, the COVID-19 situation in PNG has continued to maintain a safe operating performance. However, should the situation worsen, this could result in FY21 production being negatively affected and guidance not achieved,” the company said.
Link Administration sank 4.55 per cent on news a consortium of investors had abandoned a takeover attempt. The superannuation administration firm said the consortium, which included Pacific Equity Partners and Carlyle Group, had withdrawn their offer, which Link previously dismissed as materially undervaluing the group.
Other markets
A subdued morning on Asian markets saw the Asia Dow ease 0.02 per cent and China’s Shanghai Composite dip 0.11 per cent. Hong Kong’s Hang Seng added 0.35 per cent and Japan’s Nikkei gained 0.39 per cent.
Oil retreated from a one-week high. Brent crude slid 17 cents or 0.27 per cent to US$62.77 a barrel. Gold skidded $7.60 or 0.43 per cent to US$1,771.20 an ounce.
