Australia’s strength in natural resources fired the share market to a two-month high despite declines on Wall Street as investors fretted about soaring inflation.
The S&P/ASX 200 surged 89 points or 1.22 per cent to 7367 by mid-session. The benchmark last traded at that level in January when Wall Street’s “rates tantrum” first started to unfold.
Miners and oil producers led the charge after crude oil pushed back towards a 14-year high and aluminium jumped 4 per cent. Bank stocks rose as lending rates tested levels last seen in 2018.
What’s driving the market
Investors piled back into commodity stocks after the US central bank signalled it will act aggressively on inflation. Federal Reserve Chair Jerome Powell said inflation was “much too high” and the bank was open to raising rates by 50 basis points – twice the usual increment – at meetings this year.
Miners and energy stocks outperformed in a falling US market, setting up Australia’s resources-rich market for a strong session. Hard assets such as metals are seen by some investors as an attractive hedge against inflation.
The ASX energy sector put on 2.1 per cent. Basic materials gained 3.05 per cent as BHP and Rio Tinto pushed back towards this month’s highs.
“Aluminium prices are up 5% after Australia banned exports to Russia.Crude oil prices leapt around 7% on reports of a rebel attack on Saudi facilities, adding to price pressures caused by US sanctions on Russian energy exports,” Michael McCarthy, chief strategy officer at Tiger Brokers Australia, said.
Bond markets sold off, sending yields to multi-year peaks. The yield on ten-year Australian government bonds cracked 2.7 per cent this morning for the first time since November 2018.
Wall Street’s week-long winning run ended as investors braced for higher rates. The Dow dropped 0.58 per cent. The S&P 500 dipped 0.04 per cent.
Back home, consumer confidence slumped to an 18-month low last week as Australians reacted to surging petrol and food prices. The ANZ-Roy Morgan confidence index dived 1.8 per cent to 91.2, a level last seen in September 2020.
The Reserve Bank has been criticised this year for being slow to respond to inflationary pressures. While central banks in the US, UK and Canada have raised their benchmarks, the RBA’s official rate remains at a record-low 0.1 per cent.
The bearish chief economist of ACY Securities, Clifford Bennett, said the bank had left it too late to try to shove the inflationary genie back in the bottle.
“We warned of inflation being permanent and going higher a year ago,” Bennett said. “It is now too late for the US Federal Reserve or any central bank to catch it.
“The result will be a steadily declining level of economic activity globally with ever-higher inflation. This is not a long-term outlook that is sympathetic to stock market valuations. The current equity market rally is therefore likely to be a temporary affair.”
Going up
BHP rose 4.65 per cent to a one-week high. Rio Tinto gained 3.42 per cent and Fortescue Metals 1.44 per cent.
Further down the commodities food chain, uranium miner Paladin jumped 7.23 per cent, lithium miner Liontown 4.86 per cent and copper-gold producer Sandfire Resources 4.29 per cent.
Beach Energy was the pick of the major oil and gas companies, advancing 4.13 per cent. Woodside tacked on 2.91 per cent and Santos 1.9 per cent.
New Hope rallied 5.63 per cent to a three-year high after the company declared a special dividend. Strong coal prices helped the miner swing from a $55.4 million loss in H121 to a net profit of $330.4 million this latest half. Shareholders will receive an interim dividend of 17 cents per share and a special dividend of 13 cents per share.
A takeover offer for Ramsay Health Care‘s Asian joint venture lifted the share price 1.75 per cent. The company said it received a conditional, non-binding indicative proposal from Asia’s largest private healthcare group, IHH Healthcare Berhad, to acquire all of the 50:50 joint venture, Sime Darby Health Care. The offer values the venture at US$1.35 billion.
Digital healthcare junior ResApp flew up 53.23 per cent on positive results for a smartphone-based Covid test. A trial of the company’s screening test correctly detected Covid in 92 per cent of trial patients with the infection.
Cancer diagnostics firm Telix Pharmaceuticals edged up 2.02 per cent on news construction was underway on the company’s radiopharmaceutical production facility in Brussels.
The big four banks advanced on the prospect of margin opportunities under higher rates. CBA put on 1.23 per cent, ANZ 1.32 per cent, NAB 1.28 per cent and Westpac 1.19 per cent.
Going down
Growth stocks came under pressure from the increase in borrowing costs. Life360 dropped 6.41 per cent, Zip Co 3.45 per cent and Afterpay parent Block 4.46 per cent.
Boral sank 3.77 per cent after warning heavy rainfall on the east coast and higher energy prices will impact earnings. The construction materials provider said extreme rainfall would knock a $23 million hole in its full-year earnings, due to production and delivery issues. The company now expects underlying earnings to be $145 – $155 million.
Atlas Arteria dropped 4.88 per cent as its shares traded without the right to the latest dividend.
Other markets
The Asia Dow climbed 1 per cent during a positive morning in Asia. Hong Kong’s Hang Seng advanced 0.92 per cent, Japan’s Nikkei 1.57 per cent and China’s Shanghai Composite 0.08 per cent.
US futures continued to lose altitude. S&P 500 futures declined 12 points or 0.27 per cent.
Oil showed no sign of slowing this week’s breakneck rally. Brent crude firmed US$3.29 or 2.85 per cent to US$118.88 a barrel.
Gold pared this morning’s advance to US$2.20 or 0.1 per cent at US$1,931.70 an ounce.
The dollar retreated 0.18 per cent to 73.82 US cents.