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Aussie shares reversed early losses after weaker-than-expected inflation and economic growth reports appeared to ease pressure on the Reserve Bank to keep raising interest rates.
The S&P/ASX 200 flipped a pre-data loss of 42 points to a mid-session gain of two points or 0.03 per cent.
The mid-morning swing came after reports showed the economy grew less than expected and annual inflation cooled more than economists anticipated. The dollar dropped to a two-month low below 67 US cents before paring its fall to 0.1 per cent at 67.24 US cents.
Gains in resource stocks and some defensive sectors helped offset declines in property and banking stocks.
What’s driving the market
Hopes that inflation peaked last year were boosted by news the Consumer Price Index recorded year-on-year growth of 7.4 per cent in January, down from 8.4 per cent in December. Economists had predicted a smaller moderation in price growth to 8.1 per cent.
A 2.3 per cent decline in the cost of fruit and vegetables and clothing helped offset gains in rents and housing. While the decline was welcome, price growth remained elevated by historical standards.
“This month’s annual increase of 7.4 per cent is lower than the 8.4 per cent rise for the year to December 2022. It is, however, the second highest annual increase since the start of the monthly CPI indicator series in September 2018, signifying ongoing high inflation,” Michelle Marquardt, ABS Head of Prices Statistics, said.
A separate report showed the economy grew less than expected in the last three months of 2022. Gross domestic product increased by a seasonally-adjusted 0.5 per cent. The increase was the fifth in a row, but the second where growth slowed from the previous quarter. Economists expected stronger growth of around 0.7-0.8 per cent.
“After four quarters of strong growth following the Delta-variant lockdowns, growth in household spending softened in the December quarter. Spending on discretionary services drove the rise in household consumption, however growth markedly slowed in comparison to the September quarter,” Katherine Keenan, ABS head of National Accounts, said.
While the reports suggest higher interest rates are having the desired effect of cooling consumption, they are unlikely to deter the Reserve Bank from raising official rates again next week, according to the CEO of research group Kalkine, Kunal Sawhney.
“January month’s CPI reading is lower than the preceding month’s reading, but the commentary by ABS clearly mentions that it ‘signifies ongoing high inflation’. Also, food and housing prices are the biggest contributors to inflation, suggesting that the RBA might want to increase the cash rate further to bring down inflation,” Sawhney said.
“GDP’s 0.5% growth in December 2022 quarter came as much from ‘continued growth in household spending’ as other factors, which is another reason why the RBA might continue to make borrowings tougher by hiking cash rate.”
The market’s early weakness followed a downbeat conclusion to a losing month on Wall Street. The S&P 500 faded 0.3 per cent overnight. For the month, the broadest of the three major US indices lost 2.6 per cent. The Dow dropped 4.2 per cent and the Nasdaq 1.1 per cent.
Going up
Resource stocks outperformed for a second day. Overnight rebounds in gold, copper, oil and iron ore helped raise the materials sector further from Monday’s eight-week low.
Ramelius put on 5.31 per cent, Pilbara Minerals 5.28 per cent and Perseus Mining 4.33 per cent. Among the heavyweights, Newcrest gained 3.04 per cent, BHP 2.26 per cent, Woodside Energy 2.05 per cent and Rio Tinto 2.07 per cent.
NextDC climbed 2.82 per cent to a six-month high after yesterday forecasting full-year revenues near the top of previous guidance.
Traders continued to reward positive battery metal assays. Heavy Rare Earths firmed 12 per cent following the “most significant” results to date from its Cowalinya rare earths project in W.A. Oceana Lithium gained 6.94 per cent after samples from its project in Brazil returned assays of up to 3.61 per cent lithium oxide.
Pandemic star Harris Technology was unchanged after sales revenues almost halved last half from the prior corresponding period. The online retailer lost $2 million as it reduced inventory by dumping underperforming products at clearance prices. Shares that traded at 22.5 cents in 2020 were available for 1.6 cents this morning.
Going down
The interest rate-sensitive property sector led the selling as short-term bond yields hovered near their highest in more than a decade. The yield on two-year Australian government bonds neared its highest since 2012 before retreating after the morning’s economic data.
Lifestyle Communities shed 4.59 per cent, HMC Capital 4.01 per cent and Arena REIT 2.59 per cent. Industrial landlord Goodman sagged 2.06 per cent.
The big four banks lost between 1 and 1.7 per cent. Other drags included Transurban -1.52 per cent, CSL -0.59 per cent and Coles -0.44 per cent.
Coal producer Terracom fell 1.32 per cent after the corporate regulator launched civil proceedings over alleged breaches of whistleblower legislation. ASIC accuses the firm of making false or misleading announcements to the market relating to allegations of falsifying coal quality certificates.
Tyro Payments dropped 1.82 per cent after David Thodey resigned as Chair of the board. The former Telstra CEO had served on the board for more than four and a half years. Fiona Pak-Poy will take over the role.
A string of companies were suspended by the exchange operator for failing to lodge trading updates by yesterday’s deadline. Among the more prominent names on the naughty list were McPherson’s, Energy World, Structural Monitoring Systems and Spacetalk.
Among companies trading ex-dividend, Telstra dropped 2.4 per cent, Link Administration 4.59 per cent, Orora 3.54 per cent, AUB 1.99 per cent and The Lottery Corporation 0.91 per cent. AMP was unchanged. Australian Ethical gained 1.74 per cent.
Other markets
Asian markets were mixed. The Asia Dow inched up 0.09 per cent. Hong Kong’s Hang Seng improved 0.32 per cent. China’s Shanghai Composite dipped 0.02 per cent. Japan’s Nikkei shed 0.25 per cent.
US futures added to last night’s retreat. S&P 500 futures were recently off 12 points or 0.3 per cent.
Gold unwound some of last night’s 0.7 per cent rally, falling US$3.80 or 0.2 per cent to US$1,832.90 an ounce.
Brent crude declined 21 US cents or 0.25 per cent to US$83.24 a barrel.
