ASX Close: Seven-week high as banks shine

Australian shares ended the week at their highest since mid-September after the Reserve Bank reaffirmed it foresees no rate rises next year.

The S&P/ASX 200 rallied 29 points or 0.4 per cent to 7457. The index last closed higher midway through the September slide as the market paid out billions in dividends.

Commonwealth Bank, Macquarie Group and REA closed at records. Gold miners, Telstra and supermarkets also rose. Tech and energy stocks declined.

What moved the market

Positive leads from the US and retreats in the dollar and long-term interest rates helped fuel a third straight advance. The dollar fell below 74 US cents and bond yields declined as the Reserve Bank downplayed market expectations rates will rise as soon as next year.

In its quarterly monetary policy statement, the RBA said it did not expect employment and inflation to meet its targets until 2024.

“In some other plausible scenarios, wages growth and inflation could be higher than implied by the central scenario. If this were to eventuate, an increase in the cash rate in 2023 could be warranted. However, in the Board’s view, the latest data and forecasts do not warrant an increase in the cash rate in 2022,” the bank said.

The dollar fell 0.19 per cent to 73.93 US cents. The yield on ten-year Australian government bonds dropped five basis points towards a fifth straight loss.

Westpac‘s Bill Evans expects the first rate hike in February 2023.   

“Westpac Economics remains of the view that the initial rate hike by the RBA is likely to be in February 2023. We concur with the RBA Governor’s view that markets have got ahead of themselves – in anticipating a series of rate hikes in 2022,” he said.  

“The RBA wishes to see inflation sustainably within the inflation target band, which will require a material lift in wages growth – a lift which has yet to begin. We expect wages growth to strengthen during 2022 as the unemployment rate heads lower, forecast to dip below 4% – indicating tight labour market conditions.”

US stocks continued to break new ground overnight. The S&P 500 advanced 0.42 per cent to a new closing high.

Attention switches tonight from corporate earnings to the October US employment report. Economists predict the labour market rebounded strongly after a sharp Delta-fuelled slowdown in September. The jobless rate is anticipated to fall to 4.7 per cent as total employment increased by 455,000.

“The job market will roar back up as the Delta wave winds down,” Kalkine Group CEO Kunal Sawhney said. “Job gains are quickening across industries, especially among large companies. 

“Companies in the leisure and hospitality sectors would have increased hiring, because of the decline in Delta cases. Business has picked up again at restaurants and hotels. The trend is simple, though susceptible to evolving global trends – as long as the adverse impact of the pandemic remains restricted, more big job gains are likely.”  

Winners’ circle

CBA shares hit a record $109.95 before trimming their rise to 1.12 per cent at $109.71. The bank this morning increased its fixed mortgage rates in the face of rising borrowing costs.

Macquarie Group topped out at $204.22. Shares in the investment bank finished 0.24 per cent ahead at $202.42, a new closing high.

NAB gained 0.8 per cent and ANZ 0.28 per cent. Westpac fell 2.8 per cent as its shares traded without the rights to a dividend.

Takeover interest lifted superannuation administrator Link 8.55 per cent to a ten-week peak. Private-equity firm Carlyle pitched a conditional, non-binding indicative offer valuing its target at $5.38 per share, a 24.4 per cent premium to yesterday’s close. The Link board said it would suspend a share buyback while it considered the proposal.

News Corp surged 6.94 per cent after raising first-quarter revenues by 18 per cent to US$2.5 billion. CEO Robert Thomson said it was the most profitable quarter since the company’s relaunch in 2013. Profitability increased by 53 per cent from the prior corresponding period.

A 22 per cent lift in first-quarter revenues boosted shares in online property advertising group REA by 5.58 per cent to an all-time high. Earnings jumped 28 per cent year-on-year to $157 million.

Property manager GPT edged up 0.58 per cent as the company continued its expansion into logistics to offset the pandemic hit to retail assets. Logistics now makes up a quarter of the portfolio. CEO Bob Johnson said the sector was experiencing strong investment and tenant demand.

Other property companies to advance included Cromwell +4.94 per cent, Lendlease +1.93 per cent and Goodman +0.89 per cent.

Wesfarmers firmed 2.05 per cent after Sigma Healthcare dropped out of a bidding war for API. Sigma shares rallied 1.83 per cent after it said it would not proceed with its merger offer. API shares fell 1.66 per cent.

Gold miners rallied after a decline in US treasury yields helped raise the yellow metal almost US$30 overnight. Newcrest gained 3.55 per cent, Northern Star 6.31 per cent and St Barbara 3.61 per cent.

Doghouse

Prang of the day was Clinuvel Pharmaceuticals. The biotech sagged 12.48 per cent following a downgrade from Jefferies from ‘Buy’ to ‘Hold’. Shares in the firm had doubled since February.

British banking group, Virgin Money UK slumped 11.27 per cent after flagging higher costs to accelerate its digital banking strategy. Restructuring costs to speed up the shift to digital at the NAB spin-off were reportedly twice what analysts anticipated.  

Afterpay declined 5.53 per cent following a negative reaction to American suitor Square’s earnings release this morning. Square shares fell 3.22 per cent in extended US trade.

Other markets

A red session on Asian markets kept US futures in check. S&P 500 futures edged up a point or 0.02 per cent.

The Asia Dow dropped 0.92 per cent, China’s Shanghai Composite 0.24 per cent, Hong Kong’s Hang Seng 0.95 per cent and Japan’s Nikkei 0.7 per cent.

Oil bounced off a four-week low. Brent crude rallied 72 US cents or 0.9 per cent to US$81.26 a barrel.

Gold added to overnight gains, rising US$2.30 or 0.13 per cent to US$1,795.80 an ounce.