ASX jumps as Fed sparks Wall Street rally; Banks, tech stocks gain

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

The numbers

Australian investors breathed a sigh of relief on Thursday after the US Federal Reserve calmed tariff-wary investors on Wall Street, signalling the US central bank saw no need for drastic action in the face of Donald Trump’s trade war.

The S&P/ASX 200 climbed 90.6 points, or 1.2 per cent, to 7918.90 points in a broad rally, with nine of its 11 industry sectors advancing. Real estate investment trusts, tech firms, consumer stocks and financial stocks were powering the advance. It was a welcome shift in mood from the ASX’s $60 billion sell-off last week, which seemed to have resumed on Wednesday.

The bourse extended its gains further after a government report showed Australian employment surprisingly dropped in February, validating the Reserve Bank’s decision to cut interest rates and boosting rate cut hopes. The Australian dollar was trading 0.3 per cent lower at US63.38¢.

Wall Street jumped into the close after the Fed announcement and statement. Credit: Bloomberg

The lifters

Retailers and banks pushed the local bourse higher as investor fears about the strength of the global economy subsided following the measured tone struck by Fed chair Jerome Powell, who called the potential for the impact of tariffs on inflation “transitory”.

The big four banks all advanced, with CBA – Australia’s largest lender and also the biggest stock on the ASX – climbing 2.2 per cent. Westpac rose 1.6 per cent, NAB added 1.4 per cent and ANZ gained 1.5 per cent. Investment bank Macquarie Group jumped 3.8 per cent. In retail land, Officeworks, Bunnings and Kmart owner Wesfarmers rose 0.9 per cent, while pokies maker Aristocrat added 2.3 per cent and electronics store JB Hi-Fi gained 3.1 per cent.

Real estate investment trusts rallied as they tracked property stocks in the US, which benefited from the rise in market confidence and saw a boost from lower Treasury yields. When bonds are paying investors less in interest, they can encourage investors to pay higher prices for stocks. Data centre owner Goodman Group rose 2.8 per cent, office property fund GPT climbed 2.6 per cent and retail landlords Scentre and Stockland and Vicinity were up 2.5 per cent and 1.6 per cent.

It was the tech sector that posted the biggest gains, riding on the coattails of their American peers. Embattled software maker WiseTech Global quickly recovered from its 2.3 per cent fall on Wednesday, when its board said it was misled by executive chairman Richard White, but his job was secure. The stock finished up 2.5 per cent. Software firms Xero and Technology One were up 2 per cent and 3 per cent, respectively, while family member tracking app Life360 added 2.2 per cent.

Chief investment officer at Atlas Funds Management, Hugh Dive, said the prospect of interest rate cuts in the US would be positive for “growth” stocks such as the tech firms, but he did not see deep rate cuts ahead from the RBA.

The laggards

The only sector struggling all day was materials, with mining heavyweights BHP (down 1.1 per cent), Fortescue Metals (down 3.3 per cent) and Rio Tinto (down 1 per cent) all declining after iron ore prices fell overnight. Home sidings maker James Hardie, which makes most of its profits in the US, slumped 4.8 per cent.

Utilities also turned lower in the afternoon as gas and electricity giant APA Group slipped 0.6 per cent, AGL Energy dropped 0.3 per cent and power generator Contact Energy fell 4.3 per cent. Kiwi telecom Spark NZ lost 5 per cent as its shares were trading ex-dividend.

The lowdown

Local fund managers on Thursday said it was a positive sign for markets that the world’s most influential central bank, the Federal Reserve, was still planning to cut interest rates despite the high uncertainty surrounding Trump’s policies, and wasn’t panicking about the risk of a US recession.

Powell’s comments were soothing investor nerves after the wild market rollercoaster triggered by Trump’s barrage of announcements on tariffs over the past weeks.

“There’s nothing to suggest that [the Fed’s] path is going to be derailed just because of US policy changes,” said Diana Mousina, deputy chief economist at AMP.

The Fed chair acknowledged the rising pessimism among US consumers and companies shown by recent surveys but also pointed to data showing the world’s largest economy was still solid. He said it’s possible to have periods where “people say downbeat things about the economy and then go out and buy a new car”.

“Given where we are, we think our policy is in a good place to react to what comes, and we think that the right thing to do is to wait here for greater clarity about what the economy’s doing,” he said.

Jerome Powell said uncertainty about the economy was “unusually elevated”.Credit: AP

US stocks jumped after his comments, with Wall Street’s S&P 500 closing up 1.1 per cent. The Dow Jones added 0.9 per cent, and the Nasdaq composite rose 1.4 per cent, following weeks of sharp and scary swings for the US sharemarket.

The Fed has been holding interest rates steady this year after cutting them sharply through the end of last year. While lower rates can help give the economy a boost, they can also push up inflation.

Fed officials indicated they’re still penciling in two cuts to the federal funds rate by the end of this year. But they are also seeing weaker economic growth and higher inflation than they were before.

“They [the Fed] confirmed there were still looking at two rate cuts in the US across the next year, which broadly confirmed for people that the current direction for rates is still lower,” said Angus Gluskie, head of White Funds Management in Sydney.

Even so, Gluskie highlighted the uncertainty of the changes being put through by Trump, and said the US economy was “not out of the woods”.

With AP, Bloomberg

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