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A wounded share market bounced strongly as a drop in bond yields and rise in US futures helped investors shake off the February inflation blues.

The S&P/ASX 200 climbed 97 points or 1.46 per cent by mid-session. The rebound reversed more than half of Friday’s 161-point dive, the index’s biggest setback since September.

What’s driving the market

The launch of a new month and a weekend of market-friendly developments in the US provided welcome circuit-breakers following the market’s third straight weekly decline. Australian bond yields retreated as the Reserve Bank waded deeper into the market than usual this morning.

US futures ripped higher after President Joe Biden’s stimulus package cleared the House of Representatives on Saturday and US regulators approved Johnson & Johnson’s one-shot Covid vaccine. S&P 500 futures surged 33 points or 0.9 per cent. Dow and Nasdaq futures gained 0.8 – 1.1 per cent.

“Risk sentiment is getting a small bounce this morning after the US House of Congress passes President Biden’s US$1.9 trillion stimulus bill amid central bank sabre-rattling,” Stephen Innes, Chief Global Market Strategist at Axi, said. “While investors will forever be keeping an eye on the canary in the inflation coal mine, the sun always rises on a Monday.”

This morning’s US futures rally helped settle a market made jittery by extreme moves in bond yields last week. US yields hit 1.6 per cent on Thursday before easing 12 basis points on Friday to 1.4 per cent.

“The bond moves on Friday still feel like a pause for air, rather than the catalyst for a move towards calmer waters,” NAB Currency Strategist Rodrigo Catril said. Market participants remain nervous over the prospect of higher inflation as economies look to reopen aided by vaccine roll outs, high levels of savings along with solid fiscal and monetary support.”

The Reserve Bank underscored its intent on yields by this morning offering to buy $4 billion in long-dated bonds, twice its usual purchase.  The news helped pull ten-year yields down 20 basis points to 1.59 per cent. Analysts said the move was necessary after the bond market became increasingly disorderly last week.

Bond proxies  – companies whose steady dividends and minimal share price movements make them attractive alternatives when yields are low – rebounded. Goodman Group put on 4.2 per cent, CSL 2.9 per cent, Wesfarmers 2.6 per cent and Woolworths 2.4 per cent.

Going up

REITS, healthcare and other bond surrogates surged as the RBA’s intervention drove down yields. Growthpoint Property climbed 5.1 per cent, Stockland 5 per cent and Charter hall Group 4.1 per cent. In the health space, Fisher & Paykel gained 2.4 per cent and Ramsay 3 per cent. Utilities APA Group and AusNet put on 1.5 and 1.2 per cent. AGL Energy added 1.3 per cent.

BNPL players recovered from a dour week, encouraged by the Nasdaq’s outperformance on Friday. (The tech-heavy index bounced 0.56 per cent, versus a 1.5 per cent drop on the Dow.) Zip Co climbed 6.6 per cent, Afterpay 5.8 per cent and Sezzle 3.1 per cent.

On the wider tech front, Altium climbed 5.3 per cent despite going ex-dividend. Xero gained 4.2 per cent and Nearmap 3.7 per cent.

CBA led a recovery in the big four banks, rising 2.5 per cent. NAB gained 1.8 per cent, Westpac 1.6 per cent and ANZ 1.2 per cent. Macquarie Group put on 1.8 per cent.

Austal continued to heal from last week’s news of an investigation into its US operations. The ship builder climbed 8.4 per cent on news its Philippines division had completed the largest high-speed ferry the company had ever constructed.

Crown Resorts climbed 1.6 per cent following the resignation of director John Poynton.  

AJ Lucas more than tripled in value after announcing a return to profit. The drilling services provider swung to a net profit of $9.9 million last half from a net loss of $10.3 million in HY20. The turnaround was fuelled by strong domestic demand. Shares in the company surged 224 per cent.  

Going down

Mining stocks mostly retreated following sharp declines in metals on Friday. Fortescue Metals dived 5.7 per cent as it paid out a record dividend. Rio Tinto was flat. BHP resisted the downtrend with an uptick of 0.7 per cent.

Gold stocks felt the heat from a fourth straight decline in the yellow metal. Perseus Mining gave up 3.4 per cent, Westgold 3 per cent and Northern Star 2.9 per cent. Newcrest dropped 0.7 per cent.

Evolution Mining declined 1.8 per cent as it traded without its dividend. Other stocks going ex-dividend included Aurizon -2 per cent and Bingo Industries +0.6 per cent.

Genworth Mortgage tumbled 7.2 per cent after its US parent company sold its entire 52 per cent stake in the ASX-listed operation.

Other markets

Asian markets saw solid gains. The Asia Dow put on 1.37 per cent. China’s Shanghai Composite advanced 0.64 per cent, Hong Kong’s Hang Seng 1.65 per cent and Japan’s Nikkei 2.17 per cent.

Oil rebounded from Friday’s sell-off. Brent crude bounced 21 cents or 0.3 per cent to $US64.63 a barrel. Gold also staged a recovery, rising $13.50 or 0.8 per cent to $US1,742.30 an ounce.

The dollar inched up 0.05 per cent to 77.56 US cents.

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