ASX jumps as inflation data soothes rate fears

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

The numbers

The Australian sharemarket rallied after quarterly CPI figures came out in line with expectations, alleviating fears that runaway inflation will force the Reserve Bank to raise interest rates next week.

The S&P/ASX 200 index climbed 139.1 points, or 1.75 per cent, to 8092.30 at the close, with utilities the only sector tracking lower. The local gains came after another mixed session on Wall Street.

The RBA will closely scrutinise the latest inflation data.Credit: Dominic Lorrimer

The Australian Bureau of Statistics said inflation rose by 1 per cent over the 12 months to the June quarter, bringing the annual figure to 3.8 per cent – which broadly matched market predictions. Investors had their eyes peeled for this data, with some economists concerned that a higher-than-expected reading could make another rate hike a necessity when the RBA meets next week. The central bank targets inflation of 2-3 per cent by the end of 2025.

The lifters

Seek was the biggest large-cap advancer, gaining 5.7 per cent, followed by Harvey Norman (up 5.3 per cent). TechnologyOne rose 5.2 per cent as interest-rate sensitive sectors such as consumer stocks and information technology advanced.

Qantas shares closed 4.5 per cent stronger, as shares in competitor Rex Airlines (Regional Express Holdings) remained suspended after the company said it had appointed Ernst & Young Australia as administrators. Rex shares last traded at 56 cents on Friday.

The Big Four banks were all in the green, with CBA (up 1.1 per cent) – the biggest stock on the index – hitting another record high of $137.50 a share in the middle of the session.

In the heavyweight mining sector, the iron ore giants traded higher. Rio Tinto shares jumped 2.5 per cent after the company posted a half-year profit of $US5.8 billion ($8.9 billion), despite the slowdown in China’s economy.

BHP was up 1.8 per cent, while Fortescue recovered from Tuesday’s horror session, trading 3.2 per cent higher at the close.

The laggards

Utilities were the weakest sector on the local bourse, gaining 0.2 per cent, with Origin dropping 1 per cent. A trading update on Wednesday showed coal output from Australia’s biggest coal plant, Origin’s Eraring power station, has reached its highest level since 2019 in the past 12 months, underscoring the difficulties of weaning the grid off the polluting fossil fuel as the rollout of renewables runs into delays.

Telix Pharmaceuticals was among the biggest large-cap decliners, dropping 1.2 per cent, along with Computershare (down 1.3 per cent) and Meridian Energy (down 0.7 per cent).

The lowdown

AMP chief economist Shane Oliver said fears the Reserve Bank could raise rates next week were allayed after quarterly inflation results “came out on the soft side”.

He said the most likely outcome from the central bank meeting would be an unchanged rate of 4.35 per cent, but the RBA could still show a “tightening bias” in its announcement.

“They’ll still try and sound tough on inflation, but there is a case for another hike.”

Betashares chief economist David Bassanese said the data was “good enough” to likely rule out a rate hike. “Those with a mortgage can breathe a sigh of relief, at least for now,” he said.

“But the RBA’s gun remains loaded and could still be fired this year if inflation fails to show further declines from what remain uncomfortably high levels.

“My base case is that inflation will fall further – though this also assumes the economy and consumer spending especially will remain reasonably soft, with the unemployment rate rising to 4.5 per cent by year-end.”

On Wall Street overnight, the tech-heavy Nasdaq index dropped 1.3 per cent and the S&P 500 index slipped 0.5 per cent. However, the Dow Jones index edged up 0.5 per cent.

The world’s largest technology companies had another poor session, as they extended their losses after the latest quarterly results from software giant Microsoft fuelled concerns that the artificial intelligence frenzy might be running out of steam.

Microsoft posted a 10 per cent jump in quarterly profits, with its numbers boosted by its cloud computing business. Microsoft’s fiscal fourth-quarter profit landed at $US22 billion, or $US2.95 per share, slightly beating analyst expectations of $2.94 per share. Revenue for the period jumped 15 per cent to $US64.7 billion, with the cloud business netting $US28.5 billion. Its shares fell 6 per cent.

“If the Fed does not signal a September rate cut, markets could get a bit ugly, given recent tech weakness — especially if earnings underwhelm,” said Tom Essaye at The Sevens Report.

A rotation out of big tech has dragged the Nasdaq 100 down 9 per cent from its peak, leaving it on the cusp of a correction. The shift into cyclical pockets of the market began in earnest after signs of cooling inflation stoked bets the Fed will cut rates in September.

Bonds and gold climbed amid a flare-up in geopolitical risks. Oil rose for the first time in four sessions after Israel’s military struck Beirut, aiming at a Hezbollah commander.

Tweet of the day

Quote of the day

“What we don’t want to do is make the mistakes of the previous government, frankly, of throwing millions of dollars without government having a bit of a say about what happens in this sector and being involved,” Transport Minister Catherine King told the ABC, as Rex grounded all flights between capital cities after entering voluntary administration.

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with Bloomberg

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