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Aussie shares hit a three-week high amid optimism about cooling inflation and China reopening.
The S&P/ASX 200 rallied 44 points or 0.62 per cent by mid-session. The advance put the Australian benchmark on track for a fourth straight gain for the first time since early November.
Mining, property and industrial stocks led after Wall Street’s biggest rally of the new year. Defensive assets trailled as investors targeted sectors with more upside in a bull market.
What’s driving the market
US stocks exploded higher on Friday as investors welcomed evidence inflationary pressures were easing even as labour markets remained robust in the face of aggressive interest rate increases. The combination of slowing inflation and a strong labour market sharpened hopes for a “soft landing” for the US economy.
“The annual rate of wage inflation (average hourly earnings) is now ‘just’ 4.6% whereas the market had been looking for 5%,” ING’s chief international economist James Knightley said.
“Last month’s 0.6% month-on-month initial print has been revised down to 0.4% while December’s MoM rate came in at 0.3% versus 0.4% expected. So we have a weaker trend materialising it seems.”
Treasury yields and the US dollar dropped sharply as investors revised their interest rate expectations. The S&P 500 surged 2.28 per cent to its first major gain of 2023. The rally sealed the benchmark’s best weekly return since November.
Inflation is back on the agenda later this week with the release of Australian consumer price data on Wednesday and the US equivalent a day later. A new quarterly corporate reporting season gets underway in earnest in the US on Friday.
The Australian dollar regained 69 US cents this morning for the first time since September, encouraged by several weeks of Chinese stimulus announcements and the prospect US interest rates will top out lower than initially expected. Late morning, the Aussie was ahead 0.06 per cent at 69 US cents.
News wires this morning reported six Chinese cities have set GDP targets of at least 5.5 per cent this year as the government targets a strong return to growth.
Going up
Mining stocks set the pace, boosted by gains in gold, copper, nickel and iron ore. Nickel Industries climbed 5.24 per cent, South32 4.24 per cent and New Hope 3.64 per cent. Mineral Resources advanced 3.24 per cent, Newcrest 2.3 per cent and BHP 1.13 per cent.
Lithium junior Essential Metals soared 38.41 per cent to 47.5 cents following a takeover offer from a joint venture between ASX-listed IGO and China’s Tianqi Lithium Corporation. Tianqi Lithium Energy Australia offered 50 cents per share in cash for all of the shares in Essential Metals. The board of directors unanimously recommended the offer. Shares in IGO gained 1.32 per cent.
Uranium stocks logged significant gains following a 5.27 per cent jump in the US-listed Global X Uranium ETF. Elevate Uranium put on 12.16 per cent, Alligator Energy 13.16 per cent and Paladin Energy 7.35 per cent.
Growth stocks caught an uplift from a retreat in US treasury yields. Megaport put on 4.5 per cent, Block 3.99 per cent and Novonix 3.14 per cent.
Ethics committee approval to test an experimental anti-cancer drug helped lift Imugene 3.03 per cent. The Australian Human Research Ethics Committee greenlit a Phase 1 clinical trial of the firm’s Vaxinia oncolytic virotherapy candidate.
Rate-sensitive real estate investment trusts also kicked higher. Goodman Group gained 1.82 per cent, Vicinity Centres 1.77 per cent and Charter Hall Retail 1.72 per cent.
Other index heavyweights to advance included James Hardie +4.21 per cent, Transurban +1.22 per cent and Santos +1.14 per cent.
Going down
Fortescue Metals eased 0.76 per cent from a nine-month high following the resignation of long-serving Group CFO Ian Wells. Chair Andrew Forrest said Wells made a “huge contribution” to the company during its formative years.
Telix Pharmaceuticals dropped 4.19 per cent following a poorly-received revenue update. The company reported unaudited Q4 revenue of $76.8 million from sales of its Illucix kit for prostate cancer imaging in the US.
Also notably weak were Computershare -5.41 per cent, AMP -3.98 per cent and Champion Iron -3.35 per cent.
Investment managers were mixed in the wake of last week’s rally. Perpetual dropped 2.81 per cent. Pendal shed 1.04 per cent. Magellan bounced 2.42 per cent.
Other markets
A buoyant morning on Asian markets saw the Asia Dow rise 1.19 per cent, China’s Shanghai Composite 0.37 per cent and Hong Kong’s Hang Seng 1.45 per cent. Trade in Japan was suspended for a public holiday.
US futures moved higher in Sunday night trade. S&P 500 futures were recently ahead eight points or 0.2 per cent.
Oil clawed back a portion of last week’s 8.5 per cent decline. Brent crude rebounded 62 US cents or 0.8 per cent to US$79.19 a barrel.
Gold built on last week’s six-month high, rising US$5.80 or 0.3 per cent to US$1,875.30 an ounce.
