Source : THE AGE NEWS
The Australian sharemarket has bounced higher at the open to claw back some of Monday’s heavy losses as President Donald Trump said the US would hold off on a planned military attack on Iran this week, at the request of allies in the region.
The S&P/ASX 200 was up 84.5 points, or 1 per cent, to 8589.8 in early trade, with nine of its 11 industry sectors in positive territory. The rebound comes after the ASX slumped by 1.5 per cent on Monday. The Australian dollar was trading at US71.64¢ at 10.30am AEST.
Oil prices and stock markets worldwide yo-yoed overnight before sentiment improved this morning on Trump’s announcement. The president posted on social media that he had authorised a new wave of attacks against Iran this week, but was holding off after Saudi Arabia, Qatar and the United Arab Emirates requested more time to negotiate a nuclear deal. The move kept alive hopes that a deal to open the Strait of Hormuz may still be possible.
“The volatility will clearly continue until the Iran situation is resolved,” said veteran Wall Street strategist Louis Navellier. “If in a month from now, flows haven’t resumed through the Strait of Hormuz, energy prices will almost certainly be higher, fuelling higher inflation and higher interest rates.”
Mining stocks were mixed in early trade. Fortescue added 0.5 per cent, but Rio Tinto lost 0.5 per cent and BHP dipped 0.2 per cent. Gold prices advanced again as the renewed hopes for a peace deal eased some inflationary concerns that have weighed on bullion. Northern Star was up 0.6 per cent and Evolution Mining 1.6 per cent.
Financial stocks climbed, with Commonwealth Bank, ANZ and Westpac all adding 0.8 per cent, while National Australia Bank was 0.7 per cent higher.
Energy stocks were steady, with oil prices rising overnight before retreating this morning. The price for a barrel of Brent crude oil, the international standard, settled at $US112.10, but then fell back below $US109 after Trump’s announcement. Woodside Energy was flat and Santos edged up 0.1 per cent, while refiners Ampol added 0.2 per cent and Viva Energy rose 0.4 per cent.
Consumer stocks bounced higher as well, with supermarket giant Woolworths leading the way with a 4.3 per cent rise after JPMorgan upgraded the stock from neutral to overweight. Rival Coles added 2.8 per cent. Meanwhile, travel group Webjet entered a trading halt, pending an announcement.
Technology stocks were mixed, with WiseTech up 3 per cent and Xero climbing 1.8 per cent. Technology One slumped by 4.8 per cent after its first-half profit result disappointed, while NEXTDC edged 0.2 per cent lower.
Meanwhile, RBA assistant governor Sarah Hunter warned this morning the risk of inflation expectations in Australia drifting higher was “elevated,” saying that if they were to become untethered, a sharp economic slowdown may be needed to lower them.
Hunter, who is chief economic adviser to RBA governor Michele Bullock, focused on rising prices in the economy both before and after the energy shock triggered by the war in Iran in her speech to a Bloomberg Forum for Investment Managers.
“If [inflation] expectations rise persistently, it becomes harder for the central bank to bring inflation back to target, as it must both bring expectations back down and restore the balance between supply and demand,” she said.
“Doing so may require a more substantial slowing of economic activity, as we saw during the early 1990s recession.”
On Wall Street overnight, the S&P 500 swivelled between gains and losses before finishing with a dip of 0.1 per cent, its second loss since setting an all-time high last week. The Dow Jones added 0.3 per cent, and the Nasdaq composite fell 0.5 per cent after both indexes swung between gains and losses.
Regeneron Pharmaceuticals dropped 9.8 per cent after reporting discouraging data from a trial of a treatment for melanoma.
NextEra Energy fell 4.6 per cent after agreeing to buy Dominion Energy in an all-stock deal to create the world’s largest regulated electric utility by market value. Dominion rallied 9.4 per cent.
The moves for oil prices have helped make the world’s bond markets the centre of the action recently. Climbing yields there have cranked up the pressure on economies and stock markets worldwide.
Higher yields make it more expensive for households and businesses to borrow, which US homebuyers know because of higher mortgage rates. Higher interest rates could also make it more difficult for companies to borrow to build data centres for artificial-intelligence technology, which has been driving much of the US economy’s growth.
In the bond market, the yield on the 10-year Treasury got as high as 4.63 per cent before falling back to 4.59 per cent, where it was late on Friday. The yield on the 10-year Japanese government bond rallied toward its highest level since the late 1990s.
Yields worldwide have been climbing on fears about higher inflation caused by higher oil prices, which could push central banks not only to abandon the possibility of cutting interest rates, but consider hiking rates. Higher rates would slow inflation at the cost of hurting the economy and dragging on prices for stocks and other investments.
Several solid reports on the US economy recently, along with worries about the US government’s huge and growing debt problem, are also pushing upward on yields.
This upcoming week will offer little in terms of data on the US economy, but a heavily anticipated report on Nvidia’s latest quarterly results will arrive on Wednesday [Thursday morning AEST]. The chip company has routinely blown past analysts’ expectations each quarter, while forecasting even bigger growth than Wall Street had thought. It will likely need to keep up such momentum to keep AI stocks driving the market to more records.
Target, Home Depot and Walmart will also report their latest quarterly results this week.
In other international stock markets, indexes in Europe finished higher, with Germany’s DAX jumping by 1.5 per cent.
With AP, AAP, Bloomberg
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