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Australian shares jumped to a three-week high amid hopes global inflationary pressures have peaked, easing pressure on central banks to raise rates.  

The S&P/ASX 200 climbed 63 points or 0.88 per cent by mid-session.

The Australian benchmark breached the 7200 technical resistance level after several failed approaches. The index rose as high as 7267 and was lately trading at 7246.

Tech and other growth stocks spearheaded the rally. Miners also rose following solid gains in bulk metals at the end of last week. The defensive utilities sector trailled.  

What’s driving the market

Tentative optimism returned to the market after core inflation declined for a second straight month in the US. The drop bolstered hopes the Federal Reserve may not raise interest rates as high as markets previously feared.

US stocks roared higher as the Dow ended its longest run of weekly declines since 1932. The blue-chip average climbed 1.76 per cent on Friday to secure a weekly advance of 6.2 per cent. The S&P 500 gained 2.47 per cent for the session and 6.5 per cent for the week.

“Global equities staged a nice comeback last week, reflecting short-term oversold conditions, signs U.S. inflation is past its worst, and – most importantly – desperate market hopes that the Fed could pause its aggressive rate hike plans after two 50 point hikes in June and July,” David Bassanese, chief economist at BetaShares, said.

The improvement in risk appetite was underscored here by buying interest in the more speculative end of the market. The technology sector popped 3.85 per cent. The S&P/ASX Emerging Companies Index outpaced the broader market with a rise of 1.8 per cent. Utilities – arguably the most stable, lowest-growth sector – fell 0.5 per cent.

The market’s early exuberance waned ahead of a US market holiday. The New York Stock Exchange, Nasdaq and other markets close tonight for Memorial Day.

Going up

Tech stocks led as the cost of long-term borrowing continued to back off seven-year highs. The yield on ten-year Australian government bonds was this morning trading around 3.26 per cent after nearing 3.6 per cent earlier this month.

Afterpay parent Block climbed 9.74 per cent. Novonix added 10.19 per cent, Megaport 6.32 per cent and Xero 5.16 per cent. Tyro Payments put on 8.25 per cent and Zip Co 9.94 per cent.

Dairy stocks surged after the US regulator fast-tracked six of Australian producer Bubs’ products to help with a nationwide baby formula shortage. Bubs jumped 41.24 per cent. The company said it had 500,000 tins ready for immediate export, with another 750,000 tins in production.

A2 Milk gained 11.34 per cent. Australian Dairy Group climbed 15.87 per cent. Bega Cheese tacked on 2.03 per cent.

James Hardie was the best of the heavyweights, rising 4.2 per cent. Goodman gained 2.32 per cent, Macquarie Group 2.16 per cent and Woolworths 1.73 per cent. Mining giants BHP, Rio Tinto and Fortescue Metals added between 1 and 1.5 per cent.

nib Group edged up 0.27 per cent after postponing an increase in health insurance premiums for another two months. The company said the extension would “support members impacted by the COVID-19 pandemic”.

DGO Gold added 0.35 per cent after Gold Road Resources sweetened its takeover offer. Gold Road raised its offer from 2.16 Gold Road shares for every DGO share to 2.25 shares. Gold Road shares rose 2.69 per cent.

Liontown Resources firmed 3.79 per cent after the lithium miner confirmed offtake negotiations were continuing with Tesla. The companies agreed to extend the termination date for an agreement to June 6.

Australian Unity Office Fund jumped 10.5 per cent on a takeover offer from Sydney-based property company Aliro Group. The offer at $2.45 per share has the support of AOF’s largest unitholder, Hume Partners.

Going down

AGL fell 1.8 per cent as the failure of a demerger plan prompted a clear-out at the top of the company. Chair Peter Botten, CEO and Managing Director Graeme Hunt and two other directors will stand down after the energy giant withdrew a proposal to split in two.

The company said the demerger proposal was unlikely to meet the 75 per cent approval threshold to proceed in the face of opposition from Mike Cannon-Brookes’ Grok Ventures and other investors. A strategic review will be launched to consider the company’s next step.

Yancoal slumped 6.83 per cent on confirmation majority shareholder Yankuang Energy was exploring acquiring any shares it does not own at a discount to Friday’s last traded price. The proposed offer values Yancoal at $5.07 a share. A successful bid would lead to the delisting of the miner’s shares.  

ANZ gave up early gains after the Australian Securities and Investments Commission launched civil proceedings relating to alleged misleading credit card balances. The bank said it would consider the matters raised. The share price ticked down 0.16 per cent.

Elders dropped 2.85 per cent as its shares traded without the right to the latest dividend payment.

Other markets

A strong morning on Asian markets saw the Asia Dow advance 1.88 per cent. China’s Shanghai Composite rose 0.57 per cent, Hong Kong’s Hang Seng 2.04 per cent and Japan’s Nikkei 2 per cent.

US futures rallied ahead of tonight’s market holiday. S&P 500 futures were recently ahead 20 points or almost 0.5 per cent.

Oil built on Friday’s two-month high. Brent crude climbed US$1.13 or 1 per cent to US$116.69 a barrel.

Gold strengthened US$6.50 or 0.35 per cent to US$1,857.80 an ounce.

The dollar extended last week’s gains, rising 0.34 per cent to 71.82 US cents.

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