Source : THE AGE NEWS
The Australian sharemarket rallied into lunchtime as optimism grows over Washington’s efforts to end the nearly month-long war in the Middle East, and inflation came in weaker than forecast, boosting hopes the Reserve Bank may have more flexibility on interest rates.
The S&P/ASX 200 was up 177.3 points, or 2.1 per cent, at 8556.70 as of 12.28pm AEDT, having widened its early gains after the Australian Bureau of Statistics reported that inflation during the 12 months to February slowed to 3.7 per cent, down from 3.8 per cent in January. Economists had expected it to be unchanged. The Australian dollar was trading at US69.88¢.
The inflation reading shows that consumer prices remained elevated, but had started to stabilise before the war in Iran started on February 28. But the data doesn’t include the fuel shock from the conflict, which has pushed prices at the bowser to record levels. Federal Treasury modelling has warned inflation could jump above 5 per cent later in the year as the war pushes up prices.
Traders are now pricing in a 54 per cent chance of an interest-rate increase at the RBA’s next meeting in May, down from a roughly 60 per cent chance before the inflation data.
“Markets largely looked through the CPI as it predates the Iran conflict which is expected to drive a sharp lift in CPI fuel prices in the March release,” said Carol Kong, a strategist at Commonwealth Bank of Australia.
The ASX had already started on a good note this morning, as oil prices swung lower and Wall Street futures rose after a report the US had sent Iran a 15-point plan to resolve the Middle East conflict, following a separate report by Israel’s Channel 12 that Washington was seeking a one-month ceasefire. By midday Wednesday, Brent, the international standard, was down 6 per cent to $US98.19 per barrel, while US West Texas Intermediate oil fell 5.2 per cent to $US87.51 per barrel.
“Crude remains the tip of the spear in this headline-driven market,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “Reports that a potential 30-day ceasefire may be in the works are easing worst-case pricing scenarios and concerns around demand destruction. Details remain limited and headlines are fluid, but signs there may be an off-ramp are reducing some of the risk premium in the market.”
Airlines rallied on hopes a de-escalation of the war will de-escalate their jet fuel bills, with Qantas Airways jumping 5.4 per cent and Virgin Australia soaring 9.1 per cent. Travel agency Flight Centre gained 2.4 per cent. Qantas’ lower-cost carrier Jetstar has cut more than 10 per cent of its scheduled flights between Australia and New Zealand, as well as within New Zealand, as the Middle East oil price shock bites into demand, it said in the morning, calling the measure “temporary”.
Financial stocks rose on the improved investor sentiment, with all big four banks in the green, led by Commonwealth Bank’s 1.7 per cent rise. Westpac jumped 2.6 per cent, National Australia Bank rose 1.7 per cent and ANZ Bank added 2.2 per cent. Investment bank Macquarie climbed 4 per cent.
Mining stocks also advanced, with BHP jumping 3.2 per cent, while Rio Tinto added 1.6 per cent and Fortescue rose 1.2 per cent. A $2 billion taxpayer-funded subsidy has been announced for Rio Tinto’s Queensland aluminium smelter, as the Albanese government doubles down on its commitment to save local manufacturing with another bailout.
Gold miners surged as gold prices extended gains after the reports that the US is seeking a diplomatic route to ending the war snapped the precious metal’s nine-day losing streak. Bullion rose as much as 1.8 per cent to return above $US4500 an ounce, adding to a 1.6 per cent jump in the previous session. Northern Star Resources gained 7 per cent, Evolution Mining jumped 7.9 per cent and Newmont rallied 8.1 per cent.
Amid the revived risk-on mood on the ASX, cyclical sectors such as retailers and tech stocks also did well. Bunnings and Officeworks owner Wesfarmers rose 1.1 per cent, JB Hi-Fi was up 2.6 per cent, while on the tech front, WiseTech gained 3.2 per cent and NextDC rose 2 per cent.
On the flip side, energy stocks slid lower on the falling oil prices. Woodside Energy slumped 4.9 per cent, Santos lost 3.3 per cent and refiners Ampol and Viva Energy shed 3.1 per cent and 2.5 per cent, respectively.
Coal miners Yancoal and Whitehaven Coal also fell sharply, down 5.8 per cent and 4.1 per cent at lunchtime.
On Wall Street overnight, the S&P 500 fell 0.4 per cent after yo-yoing through the day. The Dow Jones dipped 84 points, or 0.2 per cent, while the Nasdaq composite sank 0.8 per cent.
Markets have been volatile since President Donald Trump raised hopes that the war with Iran could end soon when he said on Monday that the United States and Iran held productive talks “regarding a complete and total resolution of our hostilities in the Middle East.” His announcement, which came just before Wall Street opened for trading, caused financial markets worldwide to reverse momentum immediately.
It calmed worries that the war may cause a long-term disruption to the oil and natural gas industry in the Persian Gulf, one big enough to send a blast of inflation to the region’s customers worldwide.
But financial market have since received both encouraging and discouraging signals about the war. On one side, attacks continued in the Middle East on Tuesday after Iran denied having direct talks with the United States. On the other, Pakistan’s Prime Minister Shehbaz Sharif wrote on X that his country is ready to “facilitate meaningful and conclusive talks” to end the Iran war.
Trump said Iran had offered a “present” as a show of good faith in negotiations, noting it was related to energy flows via the Strait of Hormuz. Washington and regional mediators are discussing the possibility of holding high-level peace talks as soon as Thursday, but await a response from Tehran, Axios reported.
In the bond market, US Treasury yields returned to rising and upped the pressure on financial markets worldwide. Higher yields make mortgages and other kinds of borrowing more expensive for households and for businesses, which slows the economy. They also hurt prices for all kinds of investments, from stocks to gold to cryptocurrencies.
Treasurys paying more in interest make gold, which pays its owners nothing, look worse in comparison, and investors have lost some of the fever that drove gold prices to records earlier this year. The yield on the 10-year Treasury climbed to 4.39 per cent from 4.34 per cent late on Monday and from just 3.97 per cent before the war.
The yield on the two-year Treasury, which more closely tracks expectations for what the Federal Reserve will do with overnight interest rates, rose to 3.92 per cent from 3.83 per cent late Monday.
The Fed came into this year with expectations of resuming its cuts to interest rates, which would give the economy a boost. But oil prices have jumped so much and the threat of high inflation is so large that traders have nearly erased their bets for a cut to rates this year.
Instead, some are even betting on the possibility that the Fed may have to hike rates this year, according to data from CME Group. That was a nearly unthinkable scenario before the war began.
Higher interest rates would slow the US economy, but they would also help keep a lid on inflation.
With AP, Reuters, Bloomberg
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