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The share market mounted its strongest advance in more than two weeks, pushing for a third straight gain in a sign investors were growing more comfortable with rising borrowing costs.  

The S&P/ASX 200 rallied 68 points or 1 per cent by mid-session. The advance brought a third straight gain within reach for the first time in six weeks.

What’s driving the market

Gains in REITs, technology and health stocks combined with a reversal in financials to outweigh a slender decline in the energy sector. The index rose above 6800 for the first time in a week. The recent run of wins break a volatile run of sideways-to-negative action as the market adjusted to a sharp increase in bond yields.

“The distribution of COVID-19 vaccines is bringing us closer to a fully reopened economy and is likely the most important factor in assessing economic growth prospects for 2021,” strategists at LPL Financial wrote. “We expect interest rates to fade as a threat to markets,” they added.

The Dow and S&P 500 hit fresh highs overnight, shrugging off Friday’s pandemic-era peak in bond yields. The Dow climbed 0.53 per cent and the S&P 500 0.65 per cent. The Nasdaq Composite put on 1.05 per cent as a retreat in yields encouraged traders to buy growth stocks.

The ASX has been stuck in a sideways trading pattern for several weeks as equities adjusted to the changing outlook for inflation and the possibility rates may rise quicker than policymakers predicted. The minutes from this month’s Reserve Bank meeting reinforced the bank’s intent to maintain its loose policy settings until inflation is firmly within its 2 – 3 per cent trading range.

“Wages growth would need to be sustainably above 3 per cent, which was well above its current level,” the minutes noted. “The experience of other advanced economies over recent years had suggested that it would take a tight labour market and considerable time for higher wages growth to be sustained. The Board’s judgement was that wages growth would be unlikely to be consistent with the inflation target earlier than 2024.”

Rampant house prices loom as a potential problem for the bank. Prices jumped 3 per cent over the last three months of last year, according to a report this morning from the Australian Bureau of Statistics.

Going up

Bond surrogates led the advance after the Australian ten-year yield slid eight basis points. Goodman Group climbed 3.6 per cent, CSL 2 per cent and Brambles 1.1 per cent. Transurban gained 0.7 per cent, Woolworths 1 per cent and Coles 0.7 per cent.

As yesterday, the index gathered momentum once the heavyweight banks reversed early weakness. CBA added 0.8 per cent, Westpac 0.7 per cent, ANZ 0.6 per cent and NAB 0.3 per cent.

Revived interest in growth stocks helped lift the tech sector. Xero put on 5 per cent, Nearmap 3.5 per cent and Afterpay 2.7 per cent.  

News Corp advanced 0.8 per cent to a 52-week high after announcing a content deal with Facebook. The social media giant will pay for content from News Corp’s major Australian mastheads, including The Australian and Daily Telegraph. News Corp CEO Robert Thomson said the deal would have a “material and meaningful impact” on the business.

Dexus rallied 2 per cent to its strongest level of the year on news it was on the verge of merging its wholesale property fund with AMP’s Capital Diversified Property Fund. Dexus Wholesale Property Fund Manager Michael Sheffield said a merger, if approved, would create a “combined entity which delivers strong benefits to investors”.

Crown Resorts rose 1.6 per cent after announcing it will stop making political donations. The casino group has faced criticism for its close links to politicians. Gaming group PointsBet jumped 5.3 per cent after its Irish subsidiary acquired risk management platform Banach Technology for US$43 million.

Shares in fund manager Pendal Group climbed 2.1 per cent on news Nicholas Good will replace Emilio Gonzalez as CEO. Good is currently CEO of Pendal subsidiary JO Hambro Capital Management in the US.

Going down

The big three iron ore miners opened weak following pressure on ore prices, but improved as the morning wore on. Fortescue Metals bounced 1.5 per cent. Rio Tinto inched up 0.2 per cent. BHP trimmed its fall to 0.9 per cent.

The energy sector sank 0.3 per cent, paring three days of gains after a pause in European vaccination programs placed a question mark over the demand outlook for oil. Santos shed 1 per cent, Beach Energy 0.6 per cent and Woodside 0.5 per cent.

Other markets

The Asia Dow extended its gains late morning, rising 0.53 per cent. China’s Shanghai Composite put on 0.14 per cent, Hong Kong’s Hang Seng 0.7 per cent and Japan’s Nikkei 0.71 per cent.

US futures were mixed but little changed. Dow futures eased 27 points. Nasdaq futures ticked up almost 0.2 per cent. S&P 500 futures were flat.

Oil extended its overnight decline. Brent crude retreated 61 cents or 0.9 per cent to US$68.25 a barrel. Gold added $1.80 or 0.1 per cent at US$1,731 an ounce.

The dollar rose 0.06 per cent to 77.49 US cents.

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