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The threat of a looming recession failed to derail a third day of gains on the Australian stock exchange.
The S&P/ASX 200 poked its head above 5900 before paring its advance to 51 points or 0.9 per cent at 5885 mid-session.
The rally barely skipped a beat despite confirmation the economy is heading towards its first recession since Bob Hawke was Prime Minister. The Australian Bureau of Statistics this morning reported gross domestic product declined 0.3 per cent over the first three months of the year. With lockdown restrictions inhibiting activity this quarter, the economy now seems certain to enter a technical recession, defined as two consecutive quarters of contracting activity.
The 0.3 per cent decline was slightly better than the consensus among economists for a contraction of 0.4 per cent. Annual growth slowed to 1.4 per cent.
“This was the slowest through-the-year growth since September 2009 when Australia was in the midst of the Global Financial Crisis and captures just the beginning of the expected economic effects of COVID-19,” ABS Chief Economist Bruce Hockman said.
Separate reports showed building approvals contracted much less than expected in April and Chinese services activity rebounded sharply last month. The dollar sprinted 0.6 per cent higher to 69.33 cents following the upside surprises.
The release of the data proved a mere blip as a global rally sweeps all before it. Overnight, the S&P 500 in the US climbed 25 points or 0.82 per cent and the pan-European Stoxx 600 gained 1.57 per cent as Germany’s DAX surged 3.75 per cent.
Energy stocks set the pace as investors anticipated an extension to production caps that have helped lift crude oil out of the doldrums. Oil hit a three month high overnight ahead of an OPEC+ conference call tomorrow night. Brent crude climbed 37 cents or 0.9 per cent this morning to briefly regain the US$40 level, lately buying US$39.95. Beach Energy gained 3.9 per cent, Santos 3.6 per cent, Oil Search 3.3 per cent and Woodside 1.2 per cent.
The financial sector rose for the seventh time in eight sessions. The big four banks have added fresh fuel to the 11-week rally after lagging until late May. CBA added 2.2 per cent today, ANZ 3.7 per cent, NAB 3.1 per cent and Westpac 2.7 per cent.
As in the US overnight, the index leaders were laggards that stand to benefit from a return to normal economic activity. Seven West Media surged 21.4 per cent, casino group SkyCity Entertainment 10.5 per cent and European shopping centre operator Unibail-Rodamco-Westfield 8.6 per cent.
Gold stocks missed the latest up-leg after the haven was left behind by advances in oil, iron ore and industrial metals overnight. Gold drifted $3.10 or 0.2 per cent this morning to $US1,730.90 an ounce. Silver Lake Resources sank 8 per cent, Evolution Mining 6.4 per cent and Newcrest 2.7 per cent.
A solid morning on Asian markets saw China’s Shanghai Composite rise 0.3 per cent, Hong Kong’s Hang Seng 1 per cent and Japan’s Nikkei 1.1 per cent. S&P 500 index futures were recently up seven points or 0.2 per cent.
What’s hot today and what’s not:
Hot today: A pair of takeover offers lit up the market this morning. Unlisted investment holding company UAC launched an all-cash takeover offer for renewable energy firm Infigen Energy (ASX:IFN). UAC, which is owned by AC Energy and UPC Renewables, announced it had acquired 12.82 per cent of IFN and offered 80 cents apiece for the rest of the shares. IFN’s share price gapped up 36.4 per cent to 80.5 cents. Meanwhile, lithium explorer Exore Resources (ASX:ERX) and gold producer Perseus Mining (ASX:PRU) announced Perseus will acquire 100 per cent of Exore through an all-share transaction that values ERX at $59.8 million. Exore shares jumped 38.7 per cent. Perseus shares sank 11.9 per cent.
Not today: High hopes for Magmatic Resources’ (ASX:MAG) Lady Ilse gold prospect near Alkane Resources’ (ASX:ALK) Boda discovery were tempered by the first diamond drillhole results. While Managing Director Peter Duerden hailed “an excellent start to our drilling program”, shareholders voted with their feet. The share price sank 22.1 per cent to 26.5 cents. The company will start a 14-hole drilling program next week to test the prospect. Initial results are expected next month.
