ASX jumps after jobs data boosts interest rate hopes

By Millie Muroi
Updated

The Australian sharemarket pared back early losses on Thursday as jobs data came in softer than expected, easing the Reserve Bank’s case for further rate hikes.

The S&P/ASX 200 was up 26.6 points, or 0.4 per cent, at 7420 about midday after two days of flat trading, swinging into the green despite weakness in energy stocks and a rocky lead from Wall Street.

Wall Street lost ground after a positive start to the session.
Wall Street lost ground after a positive start to the session.Credit:AP

The energy sector was the largest drag on the index, losing 0.9 per cent by midday. Oil and gas company Santos was down 1.8 per cent despite record annual revenue after it cut its production forecast for 2023 to between 89 million and 96 million barrels of oil equivalent, down from its 2022 production of 103.2 million barrels.

The materials sector was in the green, gaining 0.6 per cent, as lithium chemicals company Allkem and Rio Tinto added 2.7 per cent and 2.4 per cent, respectively. Market heavyweight BHP was up 1 per cent as it maintained its production forecasts and announced record iron ore production in Western Australia.

The latest figures from the Australian Bureau of Statistics showed that employment unexpectedly fell in December and the jobless rate held unchanged at 3.5 per cent, sending the Aussie dollar and bond yields lower as traders pared bets on a February interest-rate increase. The yield on one-year government bonds fell just below the 3.1 per cent cash rate.

The ABS data boosted investor sentiment in the sharemarket, which more than recovered its early losses on hopes for a potential pause in rate hikes.

Overnight, Wall Street had its biggest pullback of the year after a key Federal Reserve policymaker said the central bank needs to keep raising rates to tame inflation.

Technology stocks led the way lower in the US while weak readings on retail sales and industrial production also helped keep investors in a selling mood. The S&P 500 fell 1.6 per cent after rising as much as 0.6 per cent earlier in the day. The Nasdaq fell 1.2 per cent and the Dow lost 1.8 per cent.

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Technology stocks were among the heaviest drags on the US market. Microsoft fell 1.9 per cent after it became the latest technology company to announce layoffs. The software giant is cutting 10,000 jobs, or almost 5 per cent of its workforce.

US Treasury yields were lower after the government reported that Americans cut back on their spending more than anticipated last month, the second straight decline. The government also reported more encouraging inflation data. Wholesale prices rose 6.2 per cent in December from a year earlier, a sixth straight slowdown for the measure of prices before they are passed along to consumers.

Loretta Mester said that the Fed’s key rate should rise a “little bit” above the 5 per cent to 5.25 per cent range that policymakers have collectively projected for the end of this year.
Loretta Mester said that the Fed’s key rate should rise a “little bit” above the 5 per cent to 5.25 per cent range that policymakers have collectively projected for the end of this year.Credit:Bloomberg

The Fed will announce its next decision on interest rates February 1. Investors are largely forecasting a raise of just 0.25 percentage points next month, down from December’s half-point hike and from four prior increases of 0.75 percentage points.

While there’s growing evidence that high inflation is finally easing, further rate hikes are still needed, according to Loretta Mester, president of the Federal Reserve Bank of Cleveland.

“I still see the larger risk coming from tightening too little,” Mester said in an interview with The Associated Press.

Mester stressed her belief that the Fed’s key rate should rise a “little bit” above the 5 per cent to 5.25 per cent range that policymakers have collectively projected for the end of this year.

The US central bank has raised its key overnight rate to a range of 4.25 per cent to 4.50 per cent from roughly zero a year ago.

The broader economic picture is still not clear enough to see whether its fight against inflation is working well enough to avoid a recession. Several major banks have forecast at least a mild recession at some point in 2023.

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Source: Thanks smh.com