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Telstra and the big three iron ore miners propelled the ASX towards a third straight advance amid growing optimism about the recovery following retreats in the dollar and borrowing costs.

The S&P/ASX 200 climbed 27 points or 0.4 per cent. The Australian benchmark has risen on four days out of five this week as bond yields ebbed from their highest level in almost two years.

What’s driving the market

Telecoms, miners and oil companies set the pace. Telstra, Fortescue Metals, Rio Tinto and Woodside Petroleum did the heavy lifting. Healthcare was the biggest drag as CSL eased 1.4 per cent.

Overnight, US stocks trimmed a losing week as dip-buyers took advantage of a third day of weakness. The Dow finished 199 points or 0.62 per cent ahead after earlier falling as much as 348 points. Cyclical stocks outperformed growth sectors.

This morning’s ASX rally followed reports the federal budget deficit will be significantly smaller than expected as employment rebounds and record iron ore exports deliver a welcome boost to Treasury coffers. The government now estimates the June deficit is likely to be just above US$150 billion, almost 25 per cent lower than the last official projection.

“This is still a huge deficit in anyone’s language but more people in work is providing a marked improvement to date, thanks to lower unemployment payments and more taxpayers,” Minister for Finance Simon Birmingham told the AFR. “Whilst it won’t all be smooth sailing going forward, we are seeing a remarkable recovery in the labour market. The jobs are coming back and that means our welfare bill is coming down,” he added.

The ASX has outperformed the US all week, boosted by positive economic data and fading concerns about a spike in the cost of borrowing. The ASX 200 was on course mid-session for a weekly gain of around 1.5 per cent, versus a 0.1 per cent decline on the S&P 500 with a session left.

The yield on ten-year Australian bonds eased almost three basis points to 1.666 per cent this morning, near its lowest level in a month. While rising borrowing costs reflect strength in the economy, they act as a down-pressure on corporate profits, leading to lower valuations.

The dollar is also well off its pandemic-era peak. The Aussie cracked 80 US cents in late February, but has since eased more than four cents to 75.97 US cents.    

Going up

Telstra climbed 3 per cent to a seven-month peak on news it will scrap its New Zealand listing. The telecom will delist from the NZX to “simplify its administration and streamline its shareholder services”.

Woodside climbed 1.6 per cent as oil trimmed its overnight slide. Brent crude bounced 61 cents or 1 per cent to US$62.41 a barrel this morning, reclaiming a around a quarter of last night’s loss.

Santos edged up 0.4 per cent after production restarted at its Ningaloo Vision floating production and storage vessel following scheduled maintenance. The company aims to achieve production of 10,000 barrels of oil per day from three fields off the coast of WA within weeks.

The big three iron ore producers rebounded from a three-week slide after China toughened pollution controls. Fortescue Metals advanced 3.3 per cent, Rio Tinto 1.9 per cent and BHP 0.7 per cent.

Another mixed session for the banks saw Westpac rise 1 per cent, ANZ 0.8 per cent and NAB 0.7 per cent. CBA dropped 0.3 per cent.

AMP bounced 0.9 per cent from yesterday’s setback after dousing reports CEO Francesco De Ferrari had resigned. The wealth manager said Mr De Ferrari remained in charge and was working with the board on “the future strategy and leadership of the group”.

News Corp rallied 2.4 per cent to a record after acquiring digital business news outlet Investor’s Business Daily for US$275 million from O’Neil Capital Management. Financial firms Macquarie Group and Washington H Soul Pattinson also hit all-time highs, rising 0.5 and 0.1 per cent, respectively.

Going down

Vaccine manufacturer CSL has risen all week, but stumbled 1.4 per cent this session. Transurban -1.1 per cent, Newcrest -1 per cent, Aristocrat Leisure -0.2 per cent and Woolworths -0.1 per cent were other drags.

Afterpay eased 0.2 per cent to a two-and-a-half-week low. The tech sector was the pandemic’s best performer before last month’s spike in borrowing costs triggered a sharp sell-off.

“Spiking bond yields accelerated investors’ rotation out of IT stocks into cyclical and value stocks poised to gain from the economic recovery,” Kalkine Group CEO Kunal Sawhney said. However, “bond yields mania seems to be losing its steam, keeping investors on their toes to re-evaluate their exposure to richly valued tech stocks.”

TPG Telecom hit an all-time low after founder David Teoh quit as chairman. Mr Teoh led the company from its inception to its merger with Vodafone Hutchison. Canning Fok will take over as chair. Shares in the company fell 7.6 per cent.

The morning’s worst performers were medical device developer Polynovo -3.3 per cent, Auckland International Airport -3.3 per cent and toll road operator Atlas Arteria -3 per cent.

Other markets

The Asia Dow rose 0.78 per cent as volatility on regional markets abated. China’s Shanghai Composite rose 0.29 per cent, Hong Kong’s Hang Seng 0.52 per cent and Japan’s Nikkei 0.88 per cent.

US futures inched higher. S&P 500 futures gained five points or more than 0.1 per cent. Nasdaq futures added almost 0.2 per cent.  

Gold improved $1.70 or 0.1 per cent to US$1,726.80 an ounce.

The dollar edged up 0.06 per cent to 75.97 US cents.

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