ASX posts $100b rally as it goes from fear to frenzy

The Australian sharemarket posted its biggest jump in five years on Thursday, delivering shareholders an almost $100 billion windfall after US stocks soared to one of their best days in history as US President Donald Trump said he would back off on most of his tariffs temporarily.

The S&P/ASX 200 finished up 334.6 points, or 4.5 per cent, at 7709.6, lifting its market value by $99.5 billion. The bourse had spiked as much as 6 per cent in early trading and then levelled out from late morning, more than recouping its 1.8 per cent loss from Wednesday when the punishing tariffs kicked in. All 11 industry sectors advanced, led by tech, mining and energy, which all ended up higher by more than 5 per cent.

The Australian dollar recovered from below US60¢ late on Wednesday and traded at US62.01¢ soon after the sharemarket closed.

Stocks surged on Wall Street after president Donald Trump said he’d pause some tariffs on dozens of countries for 90 days.Credit: Bloomberg

It was the biggest gain for the ASX since the early days of the COVID-19 pandemic in 2020, when the market bounced back from a pandemic panic sell-off, and the optimistic sentiment was mirrored in markets across Asia, with the MSCI Asia Pacific Index up 5.4 per cent.

“Investors across Asia and beyond are breathing a sigh of relief,” said Frederic Neumann, chief Asia economist at HSBC Holdings. “The postponement of reciprocal tariffs by the US allows more time for negotiations.”

Despite the stunning gains, market watchers urged caution as S&P 500 futures drifted lower in the afternoon, suggesting the historic rally on Wall Street may be a one-day wonder as uncertainties over the future of global trade persist.

The global economy still “faces enormous risk in the weeks and months ahead” despite Trump’s concessions overnight, Betashares chief economist David Bassanese warned in a note to clients.

“This may well be but one of likely several cruel bear market rallies in what had become a very oversold market in the short term,” he said. “We’re not out of the woods just yet.”

It was a sentiment echoed by Jessica Amir, market strategist at Moomoo, who said that despite the new optimism following Trump’s tariff delays, there was “still caution in the air”, which explained why the outsized gains seen on Wall Street weren’t replicated in the Australian market.

“The market was initially expected to rise almost 7 per cent,” Amir said. “I think it’s because people are now seeing caution creeping in after hours” in the US.

The volatile IT sector led gains on the Australian market, soaring 7.6 per cent as it tracked gains by the tech giants in the US, which took the Nasdaq composite up by more than 12 per cent. WiseTech Global, the biggest IT stock on the ASX, climbed 8 per cent, while fellow software firms Xero and Technology One jumped 6.2 per cent and 8.1 per cent, respectively. Family member tracking app Life360 soared 10.9 per cent.

Energy stocks jumped 5.2 per cent as oil prices climbed by more than 4.5 per cent overnight, boosting oil and gas giants Woodside (up 4.7 per cent) and Santos (up 4.1 per cent).

The mining heavyweights also soared amid hopes the tariff war’s effect on the global economy might now be more muted than feared, bolstering demand for metals. BHP, the world’s largest miner, climbed 5.4 per cent, and its rivals Fortescue Metals and Rio Tinto rallied 6.2 per cent and 6.4 per cent, respectively.

Financial stocks, which together with the miners make up about half of the ASX, also bounced higher. The big four banks all advanced, with CBA – the biggest stock on the ASX – up 3.6 per cent. Westpac and National Australia Bank gained 4.9 per cent each, while ANZ Bank added 3.5 per cent. Investment bank Macquarie Group finished 3.5 per cent higher, having soared 8 per cent during the session.

Meanwhile, Reserve Bank watchers tempered their rate cut expectations in light of the Trump back-down. Having only two days ago predicted a jumbo rate cut from the Reserve Bank of Australia next month, Deutsche Bank economist Phil O’Donoghue reversed his call and said the lender now believed a 25 basis point rate cut was on the table.

“Just 48 hours ago, we said that unless the US administration tilts to an off-ramp within days on its tariff policy, we expected the RBA to lower rates by 50 basis points in May,” O’Donoghue said. “A few hours ago, we would argue that the US took that off-ramp.”

The bank predicts further cuts of the same scale in August, November and February, with a terminal interest rate of 3.1 per cent in the first quarter of next year.

On Wall Street, the S&P 500 surged 9.5 per cent overnight – an amount that would count as a good year for the market. It had been sinking earlier in the session on worries that Trump’s trade war could drag the global economy into a recession. But then came his posts on social media that investors worldwide had been waiting for. The Dow Jones shot to a gain of 7.9 per cent. The S&P 500 had its third-best day since World War II.

“I have authorised a 90-day PAUSE,” Trump said in his post on his social platform Truth Social, after recognising the more than 75 countries that he said had been negotiating on trade and had not retaliated against his latest increases in tariffs.

US Treasury Secretary Scott Bessent later told reporters that Trump was pausing his so-called “reciprocal” tariffs on most of the country’s biggest trading partners, but maintaining his 10 per cent tariff on nearly all global imports, including those from Australia.

‘As welcome as the announcement was, investors can’t assume it’s the end of the tariff story, or that the market’s day-to-day volatility will disappear.’

Daniel Skelly, Morgan Stanley

It was a starkly different story for China though, though, with Trump saying tariffs were going up to 125 per cent against its products. That raises the possibility of more swings ahead that could stun financial markets. The trade war is not over, and an escalating battle between the world’s two largest economies can create plenty of damage. US stocks are also still below where they were just a week ago, when Trump announced worldwide tariffs in what he called “Liberation Day”.

But for now, at least, the focus of investors was on the positive.

“The tariff clouds parted for the first time today,” said Daniel Skelly, head of the wealth management market research and strategy team at Morgan Stanley. “But it’s too soon to know how sunny the skies will be tomorrow – or 90 days from now.”

The relief came after doubts had crept in about whether Trump cared about the financial pain the US sharemarket was taking because of his tariffs. The S&P 500, which sits at the centre of many American pension fund accounts, came into the day nearly 19 per cent below its record set less than two months ago.

That surprised many professional investors, who had long thought that a president who used to crow about records for the Dow under his watch would pull back on policies if they sent markets reeling.

Wednesday’s rally pulled the S&P 500 index away from the edge of what’s called a “bear market”. That’s what professionals call it when a run-of-the-mill drop of 10 per cent for US stocks, which happens every year or so, graduates into a more vicious fall of 20 per cent. The index is now down 11.2 per cent from its record.

Wall Street also got a boost from a relatively smooth auction of US Treasurys in the bond market on Wednesday. Earlier jumps in Treasury yields had rattled the market, indicating increasing levels of stress. Trump himself said on Wednesday that he had been watching the bond market “getting a little queasy”.

Of course, the trade war is not over. Bessent and Trump clearly showed their anger at China, which has been ratcheting up its own tariffs on US goods and announcing other countermeasures with each move Trump has made.

China said earlier it would raise tariffs on US goods to 84 per cent on Thursday. “If the US insists on further escalating its economic and trade restrictions, China has the firm will and abundant means to take necessary countermeasures and fight to the end” the Ministry of Commerce said.

Later the US Treasury secretary said in a message to countries worldwide, but perhaps most directly aimed at China: “Do not retaliate, and you will be rewarded.”

With AP, Bloomberg

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