The share market rose for a third session as positive US leads and evidence of robust business conditions offset signs that consumers are increasingly worried about inflation.
The S&P/ASX 200 rallied 25 points or 0.36 per cent to 6959. The Australian benchmark has bounced almost 1.5 per cent in three sessions since last Thursday’s US interest rates panic.
Banks, supermarkets and utilities spearheaded today’s up-leg. James Hardie and scrap metal recycler Sims slumped after downbeat trading updates.
What moved the market
Shares rose after Wall Street rallied into tonight’s midterm elections. The S&P 500 climbed 0.96 per cent as investors embraced the prospect of a split government if the Republicans regain control of the House of Representatives and possibly the Senate.
Polling overnight suggested the Republicans may regain enough seats to win both chambers. A split government would make it harder for the Biden administration to get legislation approved.
“A strong Republican victory is entirely likely,” Clifford Bennett, chief economist at ACY Securities, said.
“This will mean President Biden will be unable for the next two years to achieve very much at all. He will be blocked at every turn and the Republicans may seek to force spending cuts or they will allow the government to run out of money.”
With the market’s current focus on inflation, anything that reduces or slows spending is likely to be seen as a positive. Inflation figures for October are due on Thursday.
The ASX overcame mixed signals on the health of the economy. Investors took comfort in news that business trading conditions remained strong, even as consumers grew increasingly pessimistic about inflation.
Inflation expectations hit a record high last week, dragging consumer confidence to its lowest since the early days of the pandemic.
“Consumer confidence dropped 1.5 per cent last week as the RBA raised interest rates by 25 basis points,” ANZ Head of Australian Economics, David Plank, said. “This was a sixth consecutive weekly decline in confidence, taking the index to levels last seen in early April 2020.
“Household inflation expectations climbed to 6.8 per cent, its highest level since these data were first collected in April 2010. Falling confidence and rising inflation expectations creates a difficult mix for the RBA.”
NAB’s October business survey showed trading conditions have yet to be seriously dented by recent rate rises. The conditions index dipped a single point to +22, well above the long-term average.
“Consumers continue to spend despite headwinds from inflation and interest rates, and that run of strength looks to have carried on into October,” NAB chief economist Alan Oster said.
The survey’s measure of business confidence fell back to 0 from +5 in September, suggesting firms were growing more cautious after interest rates hit a nine-year high.
Winners’ circle
The heavily-weighted banks provided much of the day’s momentum. Westpac rebounded 2.03 per cent following a poorly-received trading update yesterday. Commonwealth Bank gained 1.36 per cent, NAB 0.69 per cent and ANZ 0.29 per cent.
Other top-end movers included Coles +1.72 per cent, Woolworths +1.52 per cent and Wesfarmers +1.4 per cent.
The Lottery Corporation put on 3.95 per cent after reporting an 11 per cent lift in revenues over the first four months of FY23. Lotteries were 9 per cent higher than the same period last year. Keno jumped 33 per cent. The company also flagged an increase in the subscription price next year for Powerball.
A2 Milk gained 3.99 per cent after launching a NZ$150 million on-market share buyback on the ASX and NZX.
Battery metal miners rallied after Macquarie Group upgraded its lithium pricing forecast. Mineral Resources gained 4.95 per cent, Pilbara Minerals 4.42 per cent and Core Lithium 3.79 per cent.
Newcrest edged up 0.17 per cent after announcing plans to extend the life of its Telfer gold mine in the Great Sandy Desert. The miner will invest $214 million to extend operations into 2025.
Under-siege fund manager Magellan slumped to a fresh nine-year low before recovering after co-founder Hamish Douglass sold roughly two-thirds of his stake in the business. Douglass said he remained confident in the Magellan investment team and reduced his holding for “family diversification purposes”. The miner fell more than 4 per cent before swinging to a gain of 0.42 per cent.
Doghouse
Construction materials supplier James Hardie sank 13.72 per cent after slashing its guidance to reflect weaker housing markets in the US, Europe and Australia. The company said it had seen a “significant change to the outlook of housing market activity for the second half of our fiscal year in most of the geographies where we participate”.
Housing starts slowed significantly in the US. Australian building activity continued to be constrained by bad weather and labour shortages. Management lowered its full-year adjusted net income guidance range to US$650-US$710 million from previous guidance of US$730-US$780 million.
A cautious outlook at today’s AGM helped drive scrap metal recycler Sims down 9.7 per cent to a near two-year low. Shareholders heard weak trading conditions persisted through the first quarter. Scrap volumes declined, increasing competition and pressuring margins.
Poultry producer Inghams fell 2.26 per cent after revealing a dip in sales volumes in the first quarter as feed costs remained elevated. CEO Andrew Reeves told today’s AGM Q1 sales volumes were “slightly lower than the previous corresponding period, reflecting a slight softening in demand”. Feed costs had started to stabilise but prices were likely to remain elevated until later this fiscal year.
The departure of long-serving CEO Paul Thompson pulled nut grower Select Harvests down 0.56 per cent. Thompson will stand down after ten years with the firm. He will be replaced by the chief executive of Alliance Group, David Surveyor.
Other markets
A mixed session on Asian markets saw the Asia Dow put on 0.93 per cent and Japan’s Nikkei add 1.36 per cent. Hong Kong’s Hang Seng slipped 0.04 per cent. China’s Shanghai Composite shed 0.52 per cent.
US futures dipped ahead of tonight’s midterm elections. S&P 500 futures slid three points or 0.07 per cent.
Gold backed off a near four-week high. The yellow metal retreated US$8.30 or 0.5 per cent to US$1,672.20 an ounce.
Oil added to last night’s 0.7 per cent decline. Brent crude dropped 27 US cents or 0.3 per cent to US$97.65 a barrel.
The dollar eased 0.21 per cent to 64.61 US cents.