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The share market reversed yesterday’s loss after Wall Street welcomed a UK government decision to scrap unfunded tax cuts that sent tremors through financial markets.
The S&P/ASX 200 rallied 93 points or 1.39 per cent by mid-session.
Highly-geared tech and property stocks led the advance as long-term borrowing costs retreated. Bank stocks jumped after trading updates from US peers highlighted a sharp profit lift from interest rate rises.
What’s driving the market
Wall Street bounced sharply after the UK government abandoned most of a controversial “mini budget” that cut top-end taxes. The unfunded proposal triggered sharp dislocations in financial assets when first announced, due to the apparent mismatch between the Bank of England’s aim of tightening monetary policy and the stimulatory nature of the fiscal package.
Markets applauded the U-turn announced by the new Chancellor of the Exchequer, Jeremy Hunt. The pound soared as much as 2 per cent against the dollar. The cost of long-term borrowing in the UK plunged. Borrowing costs in the US and Australia also declined.
“No government can control markets, but every government can give certainty about the sustainability of public finances,” Hunt said.
The S&P 500 jumped 2.65 per cent as US treasury yields retreated, easing pressure on borrowing-dependent growth stocks. The growth-heavy Nasdaq Composite soared 3.43 per cent, its biggest rally since July.
Back home, the minutes from this month’s Reserve Bank policy meeting showed further rate increases are likely in the months ahead, despite the bank’s decision to tap the brakes. The bank surprised the market by raising the cash rate target by a smaller-than-expected 25 basis points this month to 2.6 per cent.
“Members noted that, in an uncertain environment, there was an argument to slow the adjustment of policy for a time to assess the effects of the significant increases in interest rates to date and the evolving economic outlook,” the minutes said.
However, “the Board agreed on the importance of returning inflation to target and the need to establish a more sustainable balance of demand and supply in the Australian economy. This was likely to require further increases in interest rates over the period ahead.”
The bank ultimately backed a smaller rate increase because of “the risks to global and domestic growth, and the potential for inflation to subside quickly”.
The bank’s Deputy Governor Michele Bullock told a conference this morning, “The Board expects to increase interest rates further over coming months. But the pace and timing will be determined by the economic data.”
This morning’s bounce continued a run of sharp moves in both directions. The ASX 200 jumped 116 points on Friday, then gave back 94 points yesterday.
Going up
The financial sector climbed 2 per cent to a two-month high after a trading update from Bank of America underscored the tailwinds for lenders from recent rate hikes. The US bank reported its net interest income jumped 24 per cent last quarter.
NAB rallied 1.82 per cent, ANZ 1.4 per cent and Commonwealth Bank 1.66 per cent. Macquarie Group jumped 4.06 per cent.
Westpac rallied 2.13 per cent to its highest since early June after confirming media reports it was looking to acquire payments platform Tyro. The bank said it was “in preliminary discussions” with Tyro, but there was “no certainty that any transaction will result”. Tyro gained 2.4 per cent.
Growth stocks soared as the cost of borrowing retreated in the wake of the UK government’s tax backdown. The yield on ten-year Australian government bonds fell back below 4 per cent, mirroring similar declines on global bond markets.
Novonix jumped 11.17 per cent, Afterpay parent Block 7.88 per cent and Telix Pharmaceuticals 7.87 per cent.
HUB24 soared 13.52 per cent on news the platform attracted net inflows of $3 billion last quarter, increasing total funds under administration to $86.4 billion.
In the property space, HomeCo gained 5.01 per cent, Goodman Group 4.18 per cent and Centuria Capital 3.86 per cent.
Lithium miners rallied after the price of the battery metal hit a new high in China. The strength of demand was underlined by the latest auction at Pilbara Minerals. Spodumene concentrate that sold for $1,250/dmt in July last year attracted a pre-auction offer of $7,100 this month.
Lake Resources gained 6.47 per cent, Core Lithium 2.06 per cent and Liontown 2.04 per cent. Pilbara Minerals gave up early gains to trade unchanged.
Brambles inched up 0.1 per cent after reaffirming full-year guidance. Sales revenue improved 6 per cent in the first quarter to US$1,346 million.
Treasury Wine Estates advanced 1.81 per cent after today’s AGM heard trading conditions and earnings were in line with expectations last quarter. Inflation and costs were also in line with guidance. The winemaker said it was on track to deliver strong growth and earnings margin expansion.
Going down
Rio Tinto eased 0.8 per cent following a cautious trading update. The miner warned it now expects full-year iron ore shipments at the lower end of guidance.
Ore costs guidance was unchanged, but copper unit cost estimates were upwardly revised to 150-170 US cents per pound from previous guidance of 130-150 US cents. The miner also announced it would kick-start the Rhodes Ridge ore joint venture in the east Pilbara.
Gold miner St Barbara tumbled 21.27 per cent to a six-year low after downgrading guidance to reflect a production miss and a blowout in costs. The company cut the full-year target at its flagship Gwalia mine by 14 per cent from 1.1 million tonnes of ore to 950,000 tonnes. The miner will defer capital spending on several projects.
Energy was the only sector to retreat, ignoring a modest rebound in crude overnight. Santos fell 1.12 per cent, Woodside 0.85 per cent and Beach Energy 0.49 per cent.
Iron ore junior Hawsons Iron added to yesterday’s 62.16 per cent collapse following a decision to delay a banking feasibility study on its flagship project. The share price dropped another 28.57 per cent today.
Other markets
US futures powered higher in the wake of last night’s rebound. S&P 500 futures climbed 25 points or 0.68 per cent.
A green morning on Asian markets saw the Asia Dow rise 0.97 per cent, China’s Shanghai Composite 0.32 per cent, Hong Kong’s Hang Seng 1.49 per cent and Japan’s Nikkei 0.72 per cent.
Oil added to last night’s 1.4 per cent bounce. Brent crude firmed 29 US cents or 0.3 per cent to US$91.91 a barrel.
Gold gave back around a third of its overnight rise. The yellow metal fell US$5.80 or 0.35 per cent to US$1,658.10 an ounce.
The dollar hovered just below 63 US cents, lately down 0.05 per cent to 62.94 US cents.
