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A two-year high in oil, a rebound in iron ore and stronger-than-expected economic growth helped drive the share market towards record levels.
The S&P/ASX 200 rallied 57 points or 0.8 per cent, shrugging off news Victoria will remain in lockdown for another seven days. The rally lifted the index to within a point of Friday’s intraday record.
Woodside Petroleum and the big three bulk metal producers set the pace for a second day. Telstra, health giant CSL and supply-chain logistics specialist Brambles were the worst of the heavyweight drags.
What’s driving the market
Strong demand signals lifted iron ore back over US$200 a tonne. Crude oil surged to its highest level since May 2019 after the Organization of the Petroleum Exporting Countries and allies stuck to a plan to increase production slowly this year in the face of growing demand.
“OPEC+ agreed to stick to the plan to hike output in July, but the market was left guessing about what will happen after July, with Saudi Arabia keeping its options open about whether to raise supply further as demand recovers,” NAB Currency Strategist Rodrigo Catril said.
Woodside Petroleum climbed 4.18 per cent to a two-week high. Santos rose 4.92 per cent.
Chinese government attempts to depress bulk metal prices enjoyed some initial success, but ore prices have surged more than 10 per cent in the last two sessions. Overnight, the spot price for ore landed in China rallied 5.2 per cent to US$209.10 a tonne amid reports of “tightness” in steel markets.
“China tried hard to jawbone the iron ore market lower after announcing a crackdown on speculation and market regularities. However, the country’s efforts appear to be insufficient in driving down the steelmaking ingredient’s prices for a prolonged period.” Kalkine Group CEO Kunal Sawhney said.
BHP advanced 2.96 per cent, Fortescue Metals 2.63 per cent and Rio Tinto 2.26 per cent.
March-quarter gross domestic product surprised to the upside, growing a seasonally-adjusted 1.8 per cent, versus expectations for a reading of 1.5 per cent. Household spending increased 1.2 per cent. Spending on services increased 2.4 per cent as Covid restrictions were unwound.
Michael Smedes, Head of National Accounts at the Australian Bureau of Statistics, said, “With 1.8% growth in the March quarter 2021, Australian economic activity has recovered to be above pre-pandemic levels and has grown 1.1% through the year.”
Victoria’s seven-day lockdown was extended for another seven days after the state reported six new local coronavirus cases. State health authorities said they were currently managing 67 active cases.
“If we let this thing run its course, it will explode,” Acting Premier James Merlino said. “We’ve got to run this to ground, because if we don’t, people will die.”
US stocks closed little changed overnight as investors weighed economic optimism against inflationary concerns. The S&P 500 and Nasdaq Composite eased less than 0.1 per cent. The Dow gained 0.13 per cent.
Going up
Energy and materials were the morning’s prime movers, with support from REITs and industrials. Nickel Mines climbed 5.2 per cent, Pilbara Minerals 5.18 per cent and Whitehaven Coal 3.75 per cent.
South32 rose 2.49 per cent back towards its highest level in 20 months after completing the sale of its South African coal business to Seriti Resources and two trusts. The sale completes the company’s exit from thermal coal.
Mining services group Worley rose 4.28 per cent after outlining plans to transition to a “low-carbon future”. The company said it was well placed to “benefit from sustainability mega trend at more favorable margins”. Plans include reaching net zero emissions by 2030.
“We are actively targeting sustainability to be the largest proportion of our future revenue,” the company told shareholders at today’s Investor Day.
Mirvac was the pick of the REITs, rising 3.75 per cent. Charter Hall Group gained 3.08 per cent, Vicinity Centres 2.91 per cent and Scentre Group 2.79 per cent. Sector leader Goodman rose 1.77 per cent towards last November’s 12-year high.
Industrial powerhouse Transurban gained 1.52 per cent. Sydney Airport added 2.05 per cent, Reece 2.6 per cent and Seven Group 1.75 per cent.
The major banks were mixed. CBA improved 0.72 per cent. NAB added 0.3 per cent. ANZ eased 0.02 per cent and Westpac 0.13 per cent.
Going down
A retreat in the greenback weighed on businesses that generate much of their income in US dollars. CSL fell 0.39 per cent, Ansell 2.59 per cent, ResMed 1.96 per cent and Cochlear 0.92 per cent.
Tech and other growth stocks were impacted by a modest uptick in bond yields. Afterpay fell 0.46 per cent, Nanosonics 3.33 per cent and Xero 2.56 per cent.
Gold stocks wobbled as the yellow metal clung above US$1,900 an ounce. Regis Resources fell 3.76 per cent, Silver Lake 2.58 per cent and Newcrest 0.23 per cent.
Infant formula maker Bubs gave back a portion of yesterday’s 22 per cent advance after telling the exchange operator the spike was likely due to a Chinese policy change. The Chinese government yesterday announced it was raising the number of children that families can have from two to three. Bubs shares eased 8.54 per cent.
Automotive software provider Infomedia unwound most of yesterday’s gains, falling 8.17 per cent.
Other markets
A mixed morning on Asian markets saw the Asia Dow rally 0.28 per cent and Japan’s Nikkei gain 0.42 per cent. China’s Shanghai Composite fell 0.34 per cent. Hong Kong’s Hang Seng shed 0.1 per cent.
S&P 500 futures edged up three points or 0.07 per cent.
Oil built on last night’s two-year high. Brent crude rose 35 cents or 0.5 per cent to US$70.59 a barrel.
Gold declined $3.70 or 0.19 per cent to US$1,901.30 an ounce.
The dollar advanced 0.14 per cent to 77.67 US cents.
