ASX adds $34b as US inflation cools; CBA jumps 3%

The Australian sharemarket surged on Thursday, with close to $34 billion added to the value of the ASX 200 as banks and tech stocks rallied after encouraging news on US inflation.

The S&P/ASX 200 rose sharply at the open, following a Wall Street rally sparked after US underlying inflation – the figure of greatest importance to the Federal Reserve – slowed to an annual rate of 3.2 per cent in December.

While headline inflation rose from 2.7 to 2.9 per cent, the underlying figure was below economists’ forecasts and was welcomed by traders, who had become increasingly worried that improvements to inflation had stalled.

The ASX has roared higher on Thursday. Credit: Dominic Lorrimer

The US rally pushed the ASX to a gain of 113.7 points, or 1.4 per cent, to 8327 points at the close, with all 11 industry sectors rising. The Australian dollar fell, and was valued at US61.99¢ as at 4.58pm AEDT.

Banking shares climbed sharply, with Commonwealth Bank gaining 3 per cent, Westpac rising 2.5 per cent, ANZ lifting 2.7 per cent and NAB rising 2.8 per cent. Macquarie gained (3.2 per cent), while leading fintechs Zip (up 10 per cent) and Block (up 3.4 per cent) were among the biggest movers on the day.

Mining giants BHP (up 0.5 per cent), Fortescue (up 0.3 per cent) and Rio Tinto (up 0.1 per cent) had small gains, after Rio said in its quarterly update that iron ore shipments to China slipped in the December quarter amid weakened Chinese demand and declining production.

AMP deputy chief economist Diana Mousina expects inflation data released later this month to shape discussion for a February interest rate cut.Credit: Louie Douvis

Real estate (up 2.3 per cent) enjoyed strong gains, with Goodman (up 3.2 per cent), Scentre Group (up 0.6 per cent) and Stockland (up 3.7 per cent) all advancing.

Gains on the local bourse crept downwards following the release of Australian labour force data at 11.30am, which said unemployment edged up to 4 per cent in December, while 56,300 additional new jobs – well above market expectations – were created. Some economists said strength of the labour market could deter the Reserve Bank from cutting interest rates from 4.35 per cent at its first meeting of the year, to be held next month.

HSBC chief economist Paul Bloxham said the figures suggested the labour market was “both strong and continuing to tighten”, and the data supported the case for interest rates to remain unchanged in February.

“For the RBA, today’s figures are good news as they surely remind them that they are still in the ‘narrow pathway’ of continued disinflation with an economy that is still close to, if not beyond, full employment,” Bloxham said.

AMP deputy chief economist Diana Mousina said the “solid” figures didn’t make the case for cutting interest rates much clearer, and inflation data for the December quarter – to be released on January 29 – would be the “final piece in the interest rate debate puzzle”.

BetaShares chief economist David Bassanese said the “impressively resilient strength” of the labour market would support leaving interest rates unchanged.

As well as the big gains in banks and real estate shares, tech stocks also rebounded after a slump on Wednesday, pushed higher by WiseTech Global (up 2.6 per cent), Xero (up 1.5 per cent) and NextDC (up 2.9 per cent). Energy giants Woodside (up 0.2 per cent) and Santos (up 1 per cent) also rose.

Wall Street jumped on the back of the latest inflation data.Credit: AP

Healthcare giant Pro Medicus fell 0.4 per cent after an initial rise spurred by the company’s announcement that it had a nine-year contract with the University of Kentucky worth $33 million. ResMed added 1.3 per cent, while CSL was down 0.3 per cent.

Neuren Pharmaceuticals (up 11.5 per cent) was the strongest performer in the ASX 200, jumping after sharing a positive trading update on Thursday morning, one day after announcing it had applied for its trofinetide medicine, used to treat a rare genetic disorder, to be used in Europe.

Betting agency Tabcorp (up 5.9 per cent) lifted after appointing Michael Fitzsimons – executive director of wagering at the Hong Kong Jockey Club – as its chief wagering officer.

On Wall Street, the S&P 500 jumped 1.8 per cent. The Dow Jones rallied 703 points, or 1.7 per cent, and the Nasdaq composite leapt 2.5 per cent.

Few traders expect Wednesday’s US inflation data to convince the Fed to cut its main interest rate at its meeting later this month, as it has done at three straight meetings since September. But economists and analysts say it could open the door for cuts later in the year, maybe even in March, if more data comes in to show that upward pressure on inflation is abating.

“Perhaps the key takeaway is that markets are likely to be whip-sawed over the next few data releases as investors seek a narrative that they can be comfortable with for more than just a few days at a time,” said Seema Shah, chief global strategist at Principal Asset Management.

Wall Street has been lurching down and up for weeks as traders tear up their forecasts for what the Fed will do with interest rates in 2025. A further easing would boost the US economy and prices for investments, but it could also give inflation more fuel.

Traders were ebullient last year about the possibility of a string of cuts to rates, only to rein in their expectations more recently. The Fed itself has indicated it may cut rates only twice this year instead of the four times it had earlier projected, and some traders have even considered the possibility of future hikes to rates.

Wednesday’s update quashed speculation about hikes in the near term, and Treasury yields eased in the bond market on growing hopes for coming cuts.

with AP

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