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A resilient ASX shrugged off weak leads from Wall Street as unemployment fell to a 48-year low and a tentative recovery in commodity prices lifted resource stocks.

The S&P/ASX 200 rallied 19 points or 0.28 per cent towards a third straight gain.

Gains in miners, energy producers and healthcare providers helped offset declines in banking and property stocks. A dour earnings outlook drove Vegemite manufacturer Bega Cheese to an eight-year low.

What’s driving the market

The share market crept higher for a third session as investors appeared to draw heart from a muted response to the hottest US inflation report in four decades. The S&P 500 barely blinked after the consumer price index (CPI) surged an eye-watering 9.1 per cent year-on-year.

The US benchmark overcame sharper early losses to finish 0.45 per cent in the red. The fall was notable for its restraint: last month when the CPI hit 8.6 per cent, the S&P 500 plunged 3.9 per cent.   

Market pricing suggested the Fed could lift its benchmark rate by a full percentage point this month in a desperate attempt to cut demand and bring down inflation. Futures tied to the federal funds rate target marked the likelihood of a 100 basis point increase to 59 per cent, up from 10 per cent before last night’s CPI report. Overnight, Canada’s central bank raised its benchmark rate by 100 bp.

“While there a number of indications that July CPI won’t make nearly as grim reading as the June figures (falling fuel prices one sign here) markets have rightly viewed the numbers as signifying the need for the Fed to go still harder in its quest to suppress demand even if it’s the case that some of the supply chain bottlenecks impacting inflation are starting to ease,” NAB’s head of FX strategy, Ray Attrill, said.

The market trimmed its advance following mid-morning news the unemployment rate fell to a seasonally-adjusted 3.5 per cent last month, the lowest reading since 1974. Total employment increased by 88,000, driving the jobless rate down an unexpectedly strong four-tenths of a percentage point.

“The large fall in the unemployment rate this month reflects more people than usual entering employment and also lower than usual numbers of employed people becoming unemployed. Together these flows reflect an increasingly tight labour market, with high demand for engaging and retaining workers, as well as ongoing labour shortages,” Bjorn Jarvis, head of labour statistics at the ABS, said.

The dollar climbed 0.42 per cent to 67.6 US cents.

Bolstering investment sentiment here were signs commodity prices were stabilising after iron ore, crude oil, gold and copper hit multi-month lows earlier in the week.

Iron ore futures in China rallied 1.5 yesterday and gained another 1.26 per cent this morning. Brent crude continued to steady just below US$100 a barrel. Coal prices, which have held strong during the recent volatility in other markets, were today trading near record levels.

This morning’s ASX rally was notable for coming in the face of weakening US equity futures. S&P 500 futures retreated nine points or 0.24 per cent, hinting at possible second thoughts after last night’s initial inflation response.

Going up

Coal miners New Hope and Whitehaven scaled multi-year highs as Newcastle coal prices neared record levels set in March in the early days of the Ukraine-Russia war. New Hope surged 7.09 per cent to its strongest price since March 2019. Whitehaven soared 7.05 per cent to a level last seen in October 2018. Coronado gained 6.06 per cent.

The heavily-weighted bulk metal producers climbed off their lowest levels of the year. BHP rallied 2.23 per cent. Rio Tinto gained 2.39 per cent. Fortescue Metals firmed 2.74 per cent.

Energy producers drew a bid as Brent crude held below US$100 a barrel. The international benchmark edged up eight US cents overnight and rose another eight US cents or 0.1 per cent this morning to US$99.65.

Santos advanced 1.96 per cent. Woodside Energy tacked on 1.79 per cent.

Telstra inched up 0.51 per cent after completing its acquisition of Digicel Pacific in partnership with the federal government. The telecommunications giant also announced the competition regulator will not oppose its acquisition of 51.4 per cent of Fetch TV.

Sezzle bounced 5 per cent to 21 cents despite a brutal broker downgrade. RBC Capital Markets slashed its valuation of the buy now, pay later firm from $12 to 1 cent, citing bad debts, rising funding costs and negative cashflow.   

Going down

An earnings warning drove Bega Cheese down 6.34 per cent to its lowest since 2013. The dairy producer warned rising costs meant normalised earnings this fiscal year were expected to decline to $160-$190 million from forecast earnings of $175-$190 million in FY22.  

Lithium miner Lake Resources dropped 3.7 per cent after responding to an attack from short-seller J Capital Research. Lake defended its proprietary lithium extraction process against criticism it was unproven, but acknowledged previous CEO Stephen Promnitz sold shares during a blackout period in breach of ASX rules. The company said it was taking steps to ensure all directors and senior management were aware of their obligations.

Aurizon eased 2.61 per cent after the competition regulator waved through the rail haulage firm’s acquisition of One Rail Australia. Approval is conditional on Aurizon divesting ORA’s east coast rail haulage business. Aurizon will consider either a trade sale or a demerger.

Other markets

Most Asian markets were little changed late morning. The Asia Dow was dead flat. China’s Shanghai Composite dipped 0.09 per cent. Hong Kong’s Hang Seng eased 0.19 per cent. Japan’s Nikkei rallied 0.69 per cent.

Gold gave up most of its overnight gain. The yellow metal retreated US$8.90 or 0.5 per cent to US$1,726.60 an ounce.

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