ASX soars to four-month high as Wall Street surges on Fed; $A jumps

Welcome to your five-minute recap of the trading day, and how the experts saw it.

The numbers

Lithium and gold stocks sent the Australian market soaring on Thursday to hit a four-month high after the US Federal Reserve indicated it may begin slashing interest rates next year.

The Dow hit a record high.Credit: Reuters

The S&P/ASX 200 jumped 117.5 points, or 1.62 per cent, to 7375.3, at the close as all 11 sectors traded in the green, led by a surge in the interest-rate-sensitive sectors of real estate and tech.

The lifters

Real estate investment trusts soared 4.2 per cent after the US Federal Reserve said it expected to lower rates by 0.75 percentage points next year – a sharper pace of cuts than indicated in September’s projections.

The sector was also buoyed by Australian Bureau of Statistics data showed that unemployment lifted to 3.9 per cent, up from 3.8 per cent last month. The Reserve Bank of Australia is banking on rising unemployment to help bring inflation back down to its target of between 2 per cent and 3 per cent.

Heavyweights Goodman Group jumped 3 per cent, Scentre Group lifted 4.4 per cent, Vicinity Centres rose 4.6 per cent, Mirvac Group was up 1.9 per cent, Dexus soared 6.4 per cent and Charter Hall Group soared 12.2 per cent.

Lithium and gold stocks led the large-cap advancers on Thursday, with IGO up 11.3 per cent, Allkem up 9.9 per cent, Pilbara Minerals up 8.7 per cent and Northern Star Resources up 7.6 per cent.

Commonwealth Bank shares lifted 1.3 per cent.Credit: Louie Douvis

The laggards

The consumer staples and industrials sectors were the weakest performers, rising by 0.6 per cent and 0.7 per cent respectively.

Insurance stocks dragged down the local bourse, with QBE down 3.1 per cent, IAG down 2.5 per cent, Suncorp down 2 per cent.

The financials sector was up 0.9 per cent, with bank stocks offsetting the losses from insurance companies. Commonwealth Bank shares lifted 1.3 per cent, NAB rose 0.6 per cent, and Macquarie climbed 3.5 per cent.

The lowdown

Eightcap market analyst Zoran Kresovic said global sharemarkets, including Australia’s, had now priced in the Fed cutting interest rates at its March meeting.

“There is an 85 per cent chance we will get a 25 basis points cut from the Federal Reserve in March 2024,” Kresovic said. “On the back of that, we had a major risk-on rally. Risk assets had a massive night overnight and obviously, here on the ASX as well. If you have a look at the US shares, they are hitting an all-time high, or they are 2 to 3 per cent from hitting their all-time high.”

Overnight, the Dow jumped 512 points, or 1.4 per cent, to top 37,000 and surpass its prior peak of 36,799.65 set at the start of last year.

Other, more widely followed indices of US stocks also leapt. The S&P 500 rose 1.4 per cent and is within 2 per cent of its own record. The Nasdaq composite gained 1.4 per cent. The Australian dollar jumped as the greenback weakened. It was fetching 66.57 US cents at 9.45am AEDT.

Wall Street loves lower interest rates because they can relax the pressure on the economy and increase prices for all kinds of investments. Markets have been rallying since October amid rising hopes that cuts may be on the way.

Rate cuts particularly help investments seen as expensive, lower quality or forcing their investors to wait the longest for big growth. Some of Wednesday’s bigger winners were bitcoin, which rose nearly 4 per cent, and the Russell 2000 index of small US stocks, which jumped 3.5 per cent.

Apple was the strongest force pushing upward on the S&P 500, rising 1.7 per cent to its own record close. It and other big-tech stocks have been among the main reasons for the S&P 500’s 22.6 per cent rally this year.

All the excitement came as the Fed on Wednesday held its main interest rate steady at a range of 5.25 per cent to 5.50 per cent, as was widely expected.

It has hiked that rate up from virtually zero early last year in hopes of slowing the US economy and hurting investment prices by exactly the right amount: enough to snuff out high inflation but not so much that it causes a painful recession.

Analysts say global sharemarkets expect the US Federal Reserve to cut interest rates at its March meeting. Credit: Bloomberg

With inflation down sharply from its peak two summers ago and the economy still solid despite high interest rates, hopes have been rising that the Fed can pull off that perfect landing. And in a press conference on Wednesday, Fed chair Jerome Powell said its main interest rate is probably already at or near its peak.

While acknowledging that inflation is still too high and the battle against it is not over, Powell said Fed officials did not want to wait too long before cutting the federal funds rate, which is at its highest level since 2001.

“We’re aware of the risk that we would hang on too long” before cutting rates, he said. “We know that’s a risk, and we’re very focused on not making that mistake.”

Following the release of the projections, traders on Wall Street upped their bets for rate cuts in 2024. Most bets now expect the federal funds rate to end next year at a range of 3.75 per cent to 4 per cent or lower, according to data from CME Group.

Treasury yields tumbled in the bond market on such bets. The yield on the 10-year Treasury dropped to 4.01 per cent from 4.21 per cent late on Tuesday.

It was above 5 per cent in October, at its highest level since 2007. The two-year yield, which moves more on expectations for the Fed, sank to 4.43 per cent from 4.73 per cent.

Tweet of the day

Quote of the day

“The Qantas Group considers that the introduction of mandatory compensation would be a backwards step that will do nothing to reduce delays and cancellations, will increase confusion and complaints and materially increase costs, ultimately leading to higher fares and potentially compromising the viability of marginal routes,” Qantas said in a submission to the federal government’s aviation green paper.

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With AP

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