ASX rises as Wall Street gets inflation boost; Sigma slumps

Welcome to your five-minute recap of the trading day.

The numbers

The Australian sharemarket advanced on Thursday, ending a two-day rout, powered by interest-rate-sensitive tech stocks and real estate investment trusts after Wall Street hit new records overnight amid investor optimism for a soft landing of the world’s largest economy.

The S&P/ASX 200 was up 34.2 points, or 0.4 per cent, to 7749.7 points at the close, with nine out of 11 sectors rising. The benchmark gave up some of its early strong gains, with energy stocks (down 0.6 per cent) joining miners (down 0.5 per cent) to trade lower, after an ABS report showed Australia’s unemployment rate eased by 0.1 percentage points in May.

Wall Street got a boost on Wednesday after it was announced that the inflation rate has eased.Credit: Bloomberg

The jobless rate fell to 4 per cent in May from 4.1 per cent in April, a little better than market expectations, but still too strong for the Reserve Bank of Australia to start easing monetary policy, as it can’t be confident the economy is slowing down enough.

The data is unlikely to significantly alter market expectations for the Reserve Bank to leave the cash rate on hold at 4.35 per cent for the time being.

The lifters

Tech stocks were the biggest gainers on the local index, rising 2.1 per cent, followed by healthcare (up 1.6 per cent) and REITs (up 1.2 per cent).

NEXTDC (up 3.6 per cent) was the best performing large-cap stock, followed by James Hardie (up 3.2 per cent), REA Group (up 3.2 per cent) and GQG Partners (up 3 per cent).

Property stocks also advanced, with warehouse owner Goodman Group climbing 2.3 per cent and property investment and development company Mirvac adding 1.6 per cent.

The laggards

Oil and gas giants Woodside (down 0.9 per cent) and Santos (down 0.4 per cent) retreated to weigh down the sector, which slumped 0.6 per cent at the close. While iron ore heavyweights BHP (down 0.7 per cent) and Rio Tinto (down 0.4 per cent), as well as rare earth miners, weighed down the mining sector (down 0.5 per cent).

Market operator ASX recorded the greatest tumble, its shares falling 8 per cent after forecasting its total expenses in fiscal 2024 would rise 15 per cent, and between 6 per cent and 9 per cent the following year.

Lynas Rare Earths fell 4.4 per cent, Pilbara Minerals declined 2.6 per cent and Meridian Energy was down 1.8 per cent.

The Chemist Warehouse and Sigma Healthcare merger has received an amber light.Credit: Dominic Lorrimer

Sigma’s shares shed 3.7 per cent after the ACCC raised concerns its $8.8 billion merger with Chemist Warehouse could substantially lessen competition, and pharmacies currently supplied by Sigma could shut down.

Meanwhile, Booktopia had its stock put into a trading halt, hinting that it has secured additional funding. The online bookseller has been in dire straits lately after rounds of job cuts, the sudden departure of its chief executive, and a share price that has lost more than 98 per cent of its value since listing in December 2020.

The lowdown

David Bassanese, chief economist at Betashares, said while overall employment growth remained robust, the jobless rate had gradually risen over the past year.

“The May labour force report suggests that, in line with persistent weakness in economic output, labour demand is slowly but surely losing its ability to absorb the immigration-fuelled gains in labour supply,” he said.

“Given strength in labour supply, it is the trend in the unemployment rate – not the pace of employment growth per se – that is a better indicator of labour market balance and hence RBA policy.

To be sure, the unemployment rate edged back down to 4.0 per cent in May, from 4.1 per cent, and it has averaged 3.9 per cent so far this year. But that compares with an average of 3.8 per cent in [the second half of fiscal 2023] and 3.6 per cent in [the first half of fiscal 2023].”

In the United States, the S&P 500 added 0.9 per cent to its all-time high set a day earlier. The Nasdaq Composite also built on its own record and jumped 1.5 per cent, while the Dow Jones lagged the market with a dip of 0.1 per cent.

The action was even stronger in the bond market, where Treasury yields dropped after the inflation report showed US consumers paid prices that were 3.3 per cent higher for food, insurance and everything else last month from a year earlier. Economists had been expecting to see the inflation rate stuck at 3.4 per cent.

For Wall Street, a slowdown in inflation not only helps US households struggling to keep up with fast-rising prices, it also opens the door for the Federal Reserve to cut its main interest rate. Such a move would ease pressure on the economy and give a boost to investment prices.

Everything from bitcoin to gold to copper rallied after the inflation data raised expectations for coming cuts to interest rates. A measure of nervousness among investors in US stocks also eased.

For its part, the Federal Reserve kept its main interest rate steady following its latest policy meeting.

Tweet of the day

Quote of the day

“We are fighting inflation and repairing the budget without smashing the economy and we see that in these tens of thousands of new jobs created in May,” Treasurer Jim Chalmers said after the release of the jobless data. “Despite our economy weakening substantially as a result of higher interest rates, persistent inflation and ongoing global uncertainty, our labour market remains resilient and that’s clear from today’s result.”

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With AP

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