Welcome to your five-minute recap of the trading day and how experts saw it.
The numbers
The Australian sharemarket rallied on Monday as consumer stocks and miners gained momentum following a strong lead from Wall Street on Friday.
The S&P/ASX 200 was up 71.2 points, or 1 per cent, at 7216.3 at the close as all sectors except information technology and utilities traded in the green.
The local rally came despite the spectre of the Reserve Bank’s policy meeting on Tuesday, which could result in the central bank raising interest rates further in its battle against inflation.
After last week’s larger-than-expected 5.75 per cent increase in award-linked wages, hotter-than-expected inflation figures and data showing a jump in capital city house values, financial markets put the chance of a rate rise at the RBA’s meeting on Tuesday at 40 per cent.
Wall Street finished the week with bumper gains. Credit: Bloomberg
The lifters
Consumer-related stocks (up 1.8 per cent) led gains on the local bourse as Wesfarmers lifted 2.1 per cent, Aristocrat Leisure gained 1.1 per cent and IDP Education jumped 3.7 per cent.
Energy stocks (up 0.7 per cent) surged in early trade on Saudi Arabia’s announcement of a 1 million barrel-a-day oil supply cut in July, which will take its production to the lowest level in several years. By the close, gains were more subdued, with Woodside up 0.8 per cent and Santos climbing 1.1 per cent.
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Iron ore giants BHP (up 1.7 per cent), Fortescue (up 3.6 per cent) and Rio Tinto (up 1.3 per cent) also gained after a 2 per cent lift in iron ore prices. The price increase came amid hopes of new policy measures aimed at supporting China’s property sector.
The laggards
Information technology (down 1.1 per cent) was the weakest sector following a recent rally on optimism around AI and chipmaker Nvidia in the US. Xero (down 1.8 per cent) and Altium (down 1.2 per cent) both dropped.
Utilities (down 0.3 per cent) also fell as Origin Energy (down 0.5 per cent) and APA Group (down 0.2 per cent) slipped. Gold miners also pared back recent gains, with Newcrest (down 1.4 per cent) and Northern Star (down 0.4 per cent) both declining.
The lowdown
IG Australia market analyst Tony Sycamore said the US market provided a “very positive” lead for the ASX on Monday, and that optimism about China fuelled gains for miners.
“Where there’s smoke, there’s usually fire as well, and rumours about stimulus measures out of China paired with the passage of the fiscal responsibility act in the US has been good for the ASX,” Sycamore said.
He said consumer discretionary stocks had a reversal after being “beaten up” and oversold in the past month, whereas information technology stocks saw “a bit of profit-taking” after their recent surge.
As investors moved towards a “risk-on” approach, Sycamore said, there was a pullback in defensive stocks including gold companies and utilities.
Elsewhere, Wall Street rushed higher after a strong report on the US job market suggested a recession may not be as close as investors had feared.
The S&P 500 leaped 1.5 per cent for the latest surge in a rally that’s vaulted it nearly 20 per cent since mid-October. That put Wall Street’s main measure of health on the edge of entering a bull market, despite a long list of challenges.
The Dow Jones Industrial Average rallied 2.1 per cent, while the Nasdaq composite gained 1.1 per cent.
The indexes had a boost after a report showed employers unexpectedly accelerated their hiring last month. It’s the latest signal that the job market remains remarkably solid despite much higher interest rates, and it offers a hefty pillar of support for an economy that’s begun to slow.
Saudi Arabia is cutting oil production by one million barrels a day, taking it to its lowest level in several years. Credit: AP
Following the report, traders were largely expecting the Fed to hold interest rates steady at its next meeting in two weeks. If it does, that would be the first time it hasn’t hiked rates in more than a year.
A pause on rate hikes would offer some breathing room for an economy that’s already seen manufacturing contract sharply for months. Higher rates have also hurt many smaller and mid-sized banks, in part because customers have pulled deposits in search of higher interest at money-market funds.
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Several high-profile bank failures since March have shaken the market, leading Wall Street to hunt for other possible weak links. Several under the heaviest scrutiny rallied following the jobs report. PacWest Bancorp leaped 14.1 per cent, for example, to trim its loss for the year to 66.6 per cent.
But Fed officials have also warned recently that a pause on rate rises in June wouldn’t necessarily mean the end to hikes.
Traders are increasingly expecting the Fed to follow up a June pause with a July hike to interest rates, according to data from CME Group. That helped push Treasury yields higher.
The yield on the 10-year Treasury climbed to 3.69 per cent from 3.60 per cent late Thursday. It helps set rates for mortgages and other important loans.
The two-year Treasury yield, which moves more on expectations for Fed action, jumped to 4.50 per cent from 4.34 per cent.
Also helping to support Wall Street was the Senate giving final approval late on Thursday to a deal that will allow the US government to avoid a potentially disastrous default on its debt. The move was widely expected by investors, and the deal moves next to President Joe Biden for his signature.
Tweet of the day:
Quote of the day:
“We need to get people excited about technology careers, but as a sector we are losing them to law, accounting and banking,” said WiseTech boss Richard White, even as the $25 billion logistics software maker receives plenty of love from investors as one of Australia’s most successful technology companies.
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