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Australian stocks shot to a six-week high, boosted by improved sentiment on global markets as investors anticipate a slowdown in the pace of interest rate hikes.

Solid gains in Europe and the US helped lift the S&P/ASX 200 21 points or 0.3 per cent to 6800 by mid-session. Earlier, the index touched 6831, its highest level since mid-September.

Eight of eleven sectors rallied ahead of tonight’s federal budget and tomorrow’s keenly-awaited inflation readout.

Banks and defensive sectors provided the morning’s best returns. Resource stocks retreated on doubts over the outlook for China.

What’s driving the market

Any concerns about inflation reports at home and in the US later this week were pushed aside as markets continued to coast higher on hopes for smaller rate hikes. Overnight, US stocks added to last week’s bumper gains as investors embraced weak economic data as another reason for the Federal Reserve to temper its aggressive approach to inflation.

The S&P 500 climbed 1.19 per cent, adding to gains of 4.7 per cent last week. The mood on Wall Street has improved noticeably over the last few sessions amid hopes the worst of this year’s headwinds are starting to abate.

“This year was defined by spiking inflation, a sharp rise in policy rates, notable move up in bond yields and by a strengthening USD, all detrimental to equity market performance. We might be approaching the tail end of these moves,” JPMorgan’s equity team wrote.

Market analysts pointed to a modest recovery on bond markets and a shift in leadership on equity markets from defensive sectors to cyclicals and small caps.  

“To me, I would say if you buy somewhere around here, you’re probably going to feel pretty good over the next 12 months,” Jim Paulsen, chief investment strategist at Leuthold Group, said. “I don’t worry too much about trying to pick bottoms,” he added.

The Australian market faces near-term hurdles in the form of tonight’s federal budget and tomorrow’s quarterly consumer price index. Political commentators picked childcare, telecoms, infrastructure and resources as possible winners from the Labor government’s first budget.

However, new measures were expected to be restrained by the negative market reaction to last month’s disastrous “mini budget” in the UK, which triggered ructions on financial markets. Tomorrow’s CPI reading is expected to have a bigger impact.

“Tonight’s Federal budget will be completely forgotten by markets by the morning as all eyes watch for this month’s super important inflation print.,” Peter Esho, co-founder of property investment firm Wealthi, said.

“We know inflation is bad, but is it getting better or worse? That’s the game. 

“Markets are expecting the quarterly trimmed mean to rise from 4.9% to 5.6%. Any number with a 4 in front of it will be welcomed by the RBA and will give them confidence in their 25 basis points stance vs market pressure for 50 basis points.”

Going up

Traditional defensive assets set the pace, mirroring similar moves on Wall Street overnight. Industrial property giant Goodman rose 1.87 per cent, biotech CSL 1.68 per cent, supermarket Coles 1.46 per cent and Telstra 1.05 per cent.

The big four banks put on between 0.59 and 1.19 per cent. Macquarie Group added 1.46 per cent.

A dip in bond yields helped the embattled real estate investment trust sector. SCA Property Group firmed 3.24 per cent, Centuria REIT 2.94 per cent and GPT Group 2.78 per cent.

Lithium miners hovered near the top of the index following a 1.84 per cent rise in spot prices in China. Liontown Resources advanced 3.32 per cent to a six-month high. Core Lithium gained 3.93 per cent. Sayona Mining added 7.45 per cent.

Pilbara Minerals hit a fresh high after increasing spodumene concentrate production at its Pilgangoora project by 16 per cent. Shares in the miner hit $5.66 before paring their rise to $5.39, a gain of 0.19 per cent..

Credit Corp surged 6.97 per cent after taking advantage of a post-Covid rebound in unsecured credit demand to become one of the five largest debt purchasers in the US. The company raised the lower end of full-year ledger investment guidance from $220 million to $240 million. Profit and earnings guidance were unchanged.

Junior explorer C29 Metals soared 86.67 per cent after securing an option to acquire 80 per cent of two “highly prospective” lithium prospects in Argentina. The projects are located in a mining district with established infrastructure.

Going down

Plumbing specialist Reliance Worldwide dived 15.32 per cent after margins last quarter were dented by higher input costs. Earnings grew 16 per cent to US$76.8 million, but adjusted earnings margins contracted to 21.4 per cent from 26.6 per cent in the prior corresponding period.

“Operating margins were impacted by higher costs and lower volumes. This quarter was when we felt the biggest impact from the sell-through of products manufactured earlier in the year when commodity costs were at their peak. Given the typical lag between movements in commodity prices and the timing of product sales, we should start to benefit later in FY23 from the lower input costs we have seen recently,” CEO Heath Sharp said.  

Ampol declined 11.83 per cent after warning it expects fuel market volatility to continue. The refiner said it remained on track to deliver record full-year earnings of more than $1 billion after third-quarter earnings of $272.3 million.

Resource stocks struggled in the wake of commodity price falls after Xi Jinping tightened his grip on China. Analysts fear Xi’s new leadership team will focus on promoting social good at the expense of economic growth.

Fortescue Metals eased 2.39 per cent, Rio Tinto 1.75 per cent and BHP 1.43 per cent. OZ Minerals sank 3.54 per cent, South32 2.74 per cent and Chalice Mining 4.9 per cent. Coal miners Whitehaven and New Hope shed 2.76 and 3.24 per cent, respectively.

Other markets

Mainland Chinese stocks fell while other Asian markets improved. The Shanghai Composite declined 0.28 per cent. The Asia Dow firmed 0.54 per cent, Hong Kong’s Hang Seng 0.4 per cent and Japan’s Nikkei 0.83 per cent.

US futures retreated after two days of gains. S&P 500 futures drifted down nine points or 0.24 per cent.

Oil added to overnight weakness. Brent crude dropped five US cents or 0.05 per cent to US$93.21 a barrel.

Gold was unchanged at US$1,654.10 an ounce.

The dollar eased 0.06 per cent to 63.24 US cents.

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