ASX closes at all-time high as inflation surprise boosts rate cut hopes

By Stan Choe and Jessica Yun
Updated

The Australian sharemarket closed at a record high on Wednesday after government figures showed inflation fell to its lowest level in two years in the December quarter, raising investor hopes of interest rate cuts.

Having initially opened lower, the S&P/ASX 200 rallied 80.50 points, or 1.1 per cent, to close at 7680.70, beating its previous all-time high of 7628.90 from August 2021. The index reversed its early losses shortly after ABS figures showed the consumer price index rose 0.6 per cent in the December quarter, less than forecast, and the annual rate of inflation was 4.1 per cent.

Capital Economics economist Abhijit Surya said in a note to clients that the figures could lead to the Reserve Bank cutting interest rates “sooner than most are anticipating.”

Wall Street was mixed on Tuesday.
Wall Street was mixed on Tuesday. Credit: Bloomberg

Infant formula maker Bubs Australia shot up by more than 9 per cent after saying its second-quarter gross revenue jumped 79.7 per cent to $25.7 million from a year ago. Much of this was driven by American parents, with gross revenue from the US surging nearly 500 per cent.

Other top performers on the local sharemarket were Nickel Industries, up 8.6 per cent, Tabcorp Holdings (up 5.9 per cent) and Champion Iron (up 5 per cent).

The big four banks were all trading higher. Commonwealth Bank and ANZ both climbed close to 1.5 per cent and NAB added climbed 1.2 per cent. Westpac also gained 1.2 per cent after agreeing to pay $9.8 million to the corporate regulator for its unconscionable conduct during a 2016 transaction involving the largest one-time interest rate swap executed in Australian history – a “risible” penalty, according to Federal Court Justice Michael Lee.

Meanwhile, Sayona Mining lost 7.1 per cent in market value and chip technology developer Weebit Nano slid 9.8 per cent.

Reflecting on the inflation figures, which are at a two-year low, Deloitte Access Economics partner Stephen Smith said inflation was on track to meet the Reserve Bank’s targets.

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“The fight against inflation is not yet over, and the rest of that path is unlikely to be smooth. Tensions in the Middle East, Australia’s housing crisis and a disorderly energy transition all threaten to cause fits and spurts of inflation over the next 12 months,” he said in a note to clients.

Economists and policymakers will shift their focus to lifting economic growth this year, Smith said.

“The RBA’s hawkishness means it will not be in a hurry to cut interest rates,” he said, not predicting a rate cut before September.

Overnight on Wall Street, the S&P 500 slipped 0.1 per cent from its record. The Dow rose 0.3 per cent, and the Nasdaq composite fell 0.8 per cent. The ASX added 0.3 per cent on Tuesday to edge closer to a record high.

Alphabet reported fourth-quarter revenue from its core search advertising business that fell short of analysts’ estimates, overshadowing an otherwise strong end to the year. Microsoft’s cloud growth disappointed some on Wall Street — even as the company posted its strongest revenue growth since 2022, spurred by interest in new artificial intelligence products. Both shares were down more than 4 per cent in after-hours trading.

They, along with five other Big Tech stocks, have accounted for the majority of the S&P 500’s torrid rally since hitting a bottom two Octobers ago. Three more of the “Magnificent Seven” big tech stocks will report their results on Thursday (US time): Apple, Amazon and Facebook and Instagram’s parent company Meta Platforms.

UPS slumped 8.2 per cent even though it reported stronger profit for the latest quarter than analysts expected. Its revenue fell short of Wall Street’s estimates, and it also gave a forecast for full-year revenue in 2024 that was weaker than expected.

Whirlpool sank 6.6 per cent despite likewise reporting a better profit than expected. Its forecast for 2024 revenue of $US16.9 billion ($25.6 billion) was roughly $US1 billion below analysts’ estimates.

Helping to offset those losses was General Motors. The carmaker jumped 7.8 per cent after reporting stronger profit and revenue than expected.

Treasury yields were also mixed in the bond market following reports that showed the US economy remains stronger than expected. One said confidence among consumers is climbing, while another suggested the job market may be warmer than forecast.

US employers advertised 9 million job openings at the end of December, which was a touch more than economists expected and slightly above November’s level. Traders were expecting the data to show a cooldown in the number of openings.

A drawdown would have fit more neatly into the trend that’s carried Wall Street to a record: a slowdown in the economy’s growth strong enough to keep a lid on inflation but not so much that it will create a recession.

Microsoft and Alphabet shares were down in after-hours trading.
Microsoft and Alphabet shares were down in after-hours trading. Credit: Bloomberg, AP

Hopes for a continued such trend are what have Wall Street foaming about the possibility of several cuts to interest rates by the Federal Reserve this year. Cuts would mark a sharp turnaround from the Fed’s dramatic hikes to rates over the last two years, and the reductions would give a boost to the economy and investment prices.

The Federal Reserve began its latest policy meeting on interest rates on Tuesday, but virtually no one expects it to cut rates this soon. That won’t stop economists and traders from parsing every word coming out of the Fed on Wednesday after its meeting finishes. They’ll be searching for clues that a rate cut may arrive at its next meeting in March.

“We think markets are overly optimistic that we’ll see a Fed interest rate cut in March,” said Joe Davis, chief economist at Vanguard. “It likely will be mid-year before policymakers are confident that they have reined in inflation sufficiently to start cutting their target for short-term interest rates.”

In stock markets abroad, Chinese indexes slumped to tack more losses onto their already tough start to the year.

Shares in property developer China Evergrande Group, the world’s most heavily indebted real estate company, remained suspended from trading after a Hong Kong court ordered the liquidation of the company.

Other property companies led the decline in Hong Kong, where the Hang Seng index sank 2.3 per cent. Stocks in Shanghai gave up 1.8 per cent.

Chinese regulators have been moving to prop up the markets amid worries about the troubled property industry and disappointing growth in the world’s second-largest economy.

Stocks were mixed elsewhere in Asia and rising modestly in Europe.

AP

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