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Tech stocks and gold miners spearheaded a nine-month high for the ASX after the US Federal Reserve indicated interest rates were nearing a top.
The S&P/ASX 200 rallied 24 points or 0.32 per cent by mid-session. At its peak the rally extended the index’s gain for the year to 7.2 per cent and lifted it to within 1.1 per cent of its 2021 all-time high.
Sectors that depend most on borrowing to fund operations led the push as bond yields fell on both sides of the Pacific. Gold miners soared with the price of the yellow metal. Energy was the biggest laggard after crude prices sank to three-week lows.
What’s driving the market
US stocks swung higher during a wild night’s trading after Fed Chair Jerome Powell sugared the pill of another rate hike by confirming inflation had started to fall and the central bank foresaw just “a couple more” increases.
“For the first time, we can declare that a deflationary process has begun,” Powell said.
The bank increased the federal funds target rate as expected by 25 basis points to a range of 4.5–4.75 per cent. The increase marked a second-straight slowdown in the pace of hikes following four straight 75 bps hikes last year and a 50 bps increase in December.
Stocks took off as Powell argued the bank could reach its 2 per cent inflation target without significant damage to the economy.
“I continue to think that there is a path to a soft landing,” he said. Inflation could fall to 2 per cent “without a really significant downturn”, he added.
The S&P 500 swung from a loss of almost 1 per cent to a gain of 1.05 per cent. The Dow flipped a 500-point tumble into skinny gain of 0.02 per cent. The Nasdaq Composite, home to many of the companies that rely most on borrowing, jumped 2 per cent.
Commonwealth Bank this morning predicted the Fed would raise rates one more time next month before pausing.
“We see the US monetary policy cycle as almost done,” CBA chief economist Stephen Halmarick said.
Morgan Stanley thinks rates have topped out. “Morgan Stanley Research expects the U.S. Federal Reserve to pause rate increases in March after the central bank’s rate committee delivered an expected 0.25% hike today,” the firm tweeted.
This morning’s buyers drew additional encouragement from a surge in US futures after a huge after-market rally in Facebook owner Meta Platforms. The US tech heavyweight surged 20.16 per cent in extended trade as the market welcomed spending cuts and a stock buyback.
S&P 500 futures climbed 12 points or 0.28 per cent. Nasdaq futures soared 0.87 per cent.
Going up
Growth stocks rallied in expectation that last year’s biggest headwind was abating. US ten-year treasury yields slumped 11 points after the Fed announcement. The Australian ten-year yield dropped six points.
Xero surged 9.16 per cent. Megaport gained 8.61 per cent. WiseTech added 7.38 per cent.
Gold miners gave chase as a falling US dollar helped propel the yellow metal to a fresh nine-month high. Gold for April delivery flew up US$27.20 or 1.4 per cent to US$1,970 an ounce.
Evolution Mining led with a rise of 6.94 per cent. Gold Road Resources put on 5.16 per cent, Silver Lake Resources 4.76 per cent and Northern Star 4.83 per cent. Industry heavyweight Newcrest popped 4.26 per cent.
The highly-geared property sector also benefitted from the improving rates outlook. Charter Hall Group advanced 5.1 per cent, Goodman Group 1.09 per cent and Centuria Industrial REIT 2.23 per cent.
A rebound in demand for office space helped lift Centuria Office REIT 7.67 per cent to a five-month high. The trust leased 24,000 square metres of vacant space in the first half, raising its portfolio occupancy rate to 96.4 per cent. The company reaffirmed its full-year guidance.
“With positive industry data revealing an increasing number of workers returning to the office across all capital cities and tenants generally seeking to accommodate peak office occupancy rather than average occupancy, we are confident tenant demand will continue in the near term,” Centuria Fund Manager and Head of Office Grant Nichols said.
Credit Corp rallied 9.07 per cent after yesterday predicting a strong rebound this half following a 30 per cent slide in first-half profit.
Going down
Energy producers sank after crude prices were pressured by a sixth straight weekly increase in US stockpiles. Brent crude swooned 3.1 per cent.
Woodside Energy shed 0.56 per cent. Santos lost 1.14 per cent. Other significant drags included Rio Tinto -2.32 per cent and BHP -1.17 per cent following a second straight fall in iron ore prices.
Investment manager Pinnacle dropped 5.8 per cent after first-half profit slumped 24 per cent. Net profit after tax fell to $40.1 million from the prior corresponding period. Performance fees contracted as the company experienced “challenging” domestic conditions.
Insurer QBE sank 4.55 per cent a day after closing just shy of a two-year high.
Traditional defensive stocks fell as traders rotated into companies with more upside if this year’s market recovery gathers pace. Elders dropped 1.51 per cent, Bega Cheese 2.19 per cent and Suncorp 1.75 per cent.
Other markets
Asian markets rose in unison. The Asia Dow gained 0.87 per cent, China’s Shanghai Composite 0.21 per cent, Hong Kong’s Hang Seng 0.85 per cent and Japan’s Nikkei 0.43 per cent.
Oil clawed back some of last night’s 3.1 per cent loss. Brent crude bounced 49 US cents or 0.6 per cent to US$83.33 a barrel.
The dollar eased 0.11 per cent from a seven-month high to 71.4 US cents.
