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The Australian share market pared its annual loss following a rebound on Wall Street on hopes for smaller interest rate hikes in 2023.

The S&P/ASX 200 rebounded from three days of falls, rising 32 points or 0.45 per cent by mid-session. The rally trimmed the benchmark’s loss for the year to around 5.3 per cent.

Ten of eleven sectors rose in line with broad overnight gains in the US. Tech and speculative stocks led in a sign of improved risk appetite following four weeks of ASX declines.

What’s driving the market

The fabled festive seasonal bounce finally took place in the US overnight in the form of what one commentator called an “abbreviated one-day version of a Santa Rally”. The S&P 500 rebounded 1.75 per cent, erasing losses from earlier in the week.

A rise in claims for unemployment benefits to a 10-month high encouraged traders to buy on the basis interest rates might not need to rise as high next year to cool the economy and bring down inflation. In addition, the major benchmarks were looking short-term oversold on a technical basis and ready for relief.

“Nothing fundamentally has changed,” Adam Sarhan, CEO of 50 Park Investments, said. “We just had a huge drop. The market’s extended to the downside, and it’s perfectly normal to see a bounce here.”

With a session left in 2022, the rally positioned the US benchmark to break a weekly losing streak that has extended since the start of the month. The ASX is also coming off a run of three straight weekly declines but would need to finish above 7108 this afternoon to break the trend. At the halfway mark, the index was some way short at 7053.

The Australian market has comfortably outperformed Wall Street this year, buffered by a milder interest rate outlook and expectations for higher demand for raw materials next year as Chinese growth recovers. An ASX loss of 5.3 per cent compares favourably to declines of 33 per cent for the Nasdaq, 19.2 per cent for the S&P 500 and 8.6 per cent for the Dow.  

Bigger was better this year as risk-sensitive small caps bore the brunt of this year’s selling. The Small Ords has fallen more than 20 per cent, compared to a loss of around 2.3 per cent for the megacaps of the ASX 20.

Going up

A forgettable year for tech investors was set to end with a bounce. The sector rallied 1.8 per cent this morning, trimming its loss for the year to around 34 per cent.

Movers today included BrainChip +9.02 per cent, Block +4.08 per cent and Xero +2.31 per cent.   

Energy, the morning’s other big mover, has had a much brighter year, surging around 39 per cent as Russia’s invasion of Ukraine triggered a spike in energy prices. Gainers this morning included New Hope +2.57 per cent, Whitehaven +2.05 per cent and Woodside +1.07 per cent.

Battery metal producers continued to heal from news earlier in the week of a Covid-induced production pause at Tesla’s Shanghai plant. Sayona Mining firmed 6.94 per cent, Core Lithium 5.13 per cent and Lake Resources 3.64 per cent.

Aside from Woodside, the pick of the heavyweights were James Hardie +1.27 per cent and Macquarie Group +0.83 per cent. Commonwealth Bank put on 0.72 per cent, CSL 0.62 per cent and Telstra 0.38 per cent.

Going down

Real estate investment trusts continued to lose ground a day after turning ex-dividend. Stockland shed 1.23 per cent, Cromwell Property 1.11 per cent and BWP Trust 1.01 per cent.

Gold miner Newcrest was the worst of the index heavyweights, falling 0.72 per cent as the yellow metal gave back some of its overnight gains. West African Resources lost 1.48 per cent, Northern Star 1.04 per cent and Evolution 0.83 per cent.

Other markets

In Asia, the Asia Dow gained 0.75 per cent, China’s Shanghai Composite 0.35 per cent, Hong Kong’s Hang Seng 1.47 per cent and Japan’s Nikkei 0.26 per cent.

S&P 500 futures slid six points or 0.16 per cent.

Oil reversed around a third of last night’s loss. Brent crude rallied 35 US cents or 0.4 per cent to US$83.81 a barrel.

Gold gave back US$1.70 or 0.1 per cent of last night’s 0.6 per cent bounce, trading at US$1,824.30 an ounce.

The dollar was broadly steady at 67.67 US cents after bouncing half a percentage point overnight.

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