ASX jumps as inflation news boost rate cut hopes

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

The numbers

The Australian sharemarket closed higher after government figures showed inflation cooled to 2.4 per cent in the year to December, opening the door for the Reserve Bank to deliver an interest rate cut next month.

The S&P/ASX200 climbed 47.9 points, or 0.6 per cent, to 8447 points on Wednesday, after the Australian Bureau of Statistics said the consumer price index rose by 0.2 per cent in the December quarter. This took the annual rate to 2.4 per cent, down from 2.8 per cent in the 12 months to the end of September – the lowest inflation result since the March quarter of 2021.

The ASX rose on the back of the latest inflation figures.Credit: Louie Douvis

The closely watched measure of underlying inflation rose by 0.5 per cent in the quarter, the lowest rate since mid-2021. The annual underlying inflation rate dropped to 3.2 per cent. The ASX 200 index had been 0.4 per cent higher earlier in the morning before the ABS figures were released, and extended its gains as the data bolstered predictions of an RBA rate cut next month.

The gains come after the local bourse dipped 0.1 per cent on Tuesday, after a mixed day of trading which was dominated by the emergence of Chinese artificial-intelligence startup DeepSeek, which triggered a carnage for tech stocks on Wall Street on Monday.

The Australian dollar saw minor gains and was valued at US62.44¢ as of 4.25pm AEDT.

The lifters

Information technology was one of the best-performing sectors on Wednesday, with WiseTech Global up 2.6 per cent and Xero up 2.5 per cent. Real estate was also in the green, with data centre owner Goodman Group – one of the biggest losers in the previous trading session – up 1.8 per cent and shopping centre owners Scentre, Vicinity and Stockland climbing 1.1 per cent, 2.3 per cent and 2.1 per cent, respectively.

Energy stocks also had a strong day after Tuesday’s losses, buoyed by gains in Woodside Energy (up 0.8 per cent), Ampol (up 0.7 per cent) and Yancoal (up 0.2 per cent). Origin Energy was also up 1.6 per cent and Meridian Energy climbed 1.5 per cent.

Meanwhile, shares in embattled casino operator Star Entertainment were up 13 per cent after the cash-strapped company announced it’s selling several Sydney assets, including its Star Sydney Event Centre, for $60 million to Foundation Theatres.

Despite receiving several loans, Star is in a race against time as it burns through cash.Credit: Louie Douvis

In an ASX statement, Star CEO Steve McCann said management “had worked closely with the team at Foundation Theatres since they acquired the sublease for the Sydney Lyric [theatre] in 2011”.

“We continue to work on a number of other potential non-core asset transactions,” he added.

The laggards

Materials were the only sector in red on Wednesday, with mining heavyweights BHP and Rio Tinto down 0.9 per cent and 1.2 per cent, respectively. Coles had a choppy afternoon, with the supermarket giant falling 0.2 per cent, while Woolworths rose 0.4 per cent.

The big banks were mixed, with Westpac (up 0.5 per cent) and ANZ (up 0.3 per cent) in the green, however NAB and CBA were down 0.8 per cent and 0.1 per cent, respectively.

The lowdown

Westpac chief economist Luci Ellis said the “better than expected” inflation data tips the balance back in favour of a February rate cut.

“With trimmed mean inflation at 0.5 per cent in the quarter, we have just enough evidence to conclude that disinflation has proceeded faster than the RBA expected, so the board will have the required confidence to start the rate-cutting phase in February,” she said.

CreditorWatch’s Chief Economist Ivan Colhoun also said there was “a lot to like” in Wednesday’s CPI release, which meant “the RBA will be able to revise down inflation forecasts for the first time for quite some years and the board will be able to sign off on what I expect will be the beginning of a modest recalibration of interest rates at the mid-February board meeting”.

“I don’t expect it to be a particularly large easing cycle,” he added, predicting a 25 basis point cut for next month.

In the US, the spotlight remained on Nvidia, whose chips are powering much of the move into AI and whose stock has become a symbol of the surrounding frenzy. It rose 8.8 per cent after plunging nearly 17 per cent the day before, which was its worst drop since the 2020 COVID crash.

Other AI-related companies also held steadier, including chip company Broadcom, which rose 2.6 per cent. Constellation Energy picked up 1.4 per cent after plummeting nearly 21 per cent on Monday. It had earlier rallied on expectations it will help supply the electricity that vast AI data centres would gobble up.

Such revenues are threatened after DeepSeek said it was able to develop a large language model that can perform as well as big US rivals, but at a fraction of the cost.

That raises questions about whether all the spending expected for AI chips and electricity will need to happen.

AI-related stocks have been Wall Street’s biggest stars in recent years, soaring on expectations that big spending will only continue to grow. The gains, though, also created criticism that their stock prices had simply gone too high, too fast.

Tweet of the day

Quote of the day

“America spent the past three years trying to build a wall around its most advanced semiconductors. DeepSeek has just blown a trillion-dollar hole in it.”

Read more of Stephen Bartholomeusz’s opinion piece here. 

You might have missed

In the race for AI domination, what are the main differences between DeepSeek and US chatbots such as ChatGPT? This masthead put it to the test and asked the same three questions to both chatbots. Read more here. 

with AP

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