Market stabilizes ahead of likely rate hike – The Market Herald

The equity market stabilized on the eve of an interest rate hike as a U.S. market holiday and a rebound in major commodities encouraged buyers.

The S&P/ASX 200 rebounded 23.5 points or 0.34% from Friday’s five-week low.

Gains by oil and gas producers and bulk metal and coal miners helped the market ride out weak leads in the US heading into its Labor Day long weekend. Declines in banking and technology stocks helped contain the recovery.

What moved the market

The market showed little nervousness ahead of what should be widely expected at 50bps rate hike tomorrow afternoon. The ASX’s RBA rate indicator puts the odds of a 50 basis point increase in the cash rate target at 83%.

Much of the interest in tomorrow’s announcement will likely center on whether the central bank is hinting at a pause in this year’s aggressive rate cycle. An increase tomorrow would be the fifth in a row.

“All of the focus will be on the outlook and whether the language supports a 25 basis point cut in increases after September, and what exactly the Governor’s ‘same keel’ comments mean in this regarding inflation returning to 2-3%, against an uncertain growth outlook,” said NAB Economics Director Tapas Strickland.

Today’s economic data appears to be no change to the outlook for a fourth straight 50 basis point hike. Job advertisements rose 2% last month, signaling a strong unmet labor need. Retail sales increased by 1.3%, as predicted by economists.

Business operating profits jumped a seasonally adjusted 7.6% in the June quarter, well above growth expectations of 4.6%. Wages and salaries increased by 3.3%.

The unexpectedly weak growth in business inventories was the only obvious negative. Weak result expected to drop Wednesday’s result by around one point GDP figure.

Wall Street remains closed tonight for Labor Day, offering investors a temporary respite from recent pressures. The S&P500 has fallen about 7% since Federal Reserve Chairman Jerome Powell warned of “pain” for businesses as the central bank wages a war on inflation. On Friday, the US benchmark fell 1.07%.

winner’s circle

The heavy weights materials The sector snapped a week-long losing streak following attempts to rally iron ore, gold and other metals. The sector rebounded 1.9% this afternoon.

Last week’s falls came as Chinese authorities imposed restrictions in several parts of the country to contain Covid outbreaks. Thirty-three Chinese cities are now under partial or full lockdown, according to Caixin.

Iron-ore rose 3.9% today on the Dalian Commodity Exchange on stronger than expected Chinese economic data. On Friday, copper and gold both cut losing weeks.

The ASX energy the sector climbed nearly 4% as oil rallied for a second day. Brent crude climbed US$1.98 or 2.1% this afternoon to US$95 a barrel.

Woodside Energy was the best of the heavyweights, rising 4.25% on expectations of higher gas prices as Russia holds Europe hostage. State-controlled Russian producer Gazprom failed to restart supplies to Europe on Saturday after a maintenance shutdown.

Santos climbed 3.1%. Beach Energy jumped 5.18%.

coal miners shone after thermal coal prices jumped more than 5% last week. Whitehaven jumped 6.52% to a new record high. New Hope gained 5.69%. Coronado strengthened by 7.45%.

BHP and Rio Tinto rallied with ore prices, adding 3.18 and 1.75% respectively. Uranium keeper Paladin Energy bet 6.37%.

In the lithium space, Core Lithium climbed 5.84%, Lake Resources 3.77% and Pilbara Minerals 4.23%.

Gold diggers also found relief after Friday’s nearly four-year low. Evolution Mining rebounded 4.17%, West African Resources 3.88% and Regis Resources Mining 2.61%.

Doghouse

Dividend payouts and the sharp rise in the cost of long-term borrowing last week were among the main headwinds in the session. Fortescue Metals fell 4.59% as its shares traded ex-dividend.

Other companies trading without the right to the latest dividend included Bendigo Bank -3.01%, Orora -3.02%, NIB -2.62% and Iluka Resources -0.71%.

Rising yields continued to cloud the outlook for debt-reliant companies growth stocks. Imugene fell by 8.16%, PointsBet by 6.44% and Zip Co by 4.05%.

A rebound in fuel prices weighed travel actions. Qantas fell 3.22%. Webjet fell 2.59%. Flight Center lost 3.11%. Business travel management fell 1.04% as it traded ex-dividend.

Buy now, pay later player Hmm fell 1.92% after dropping a partnership with Air New Zealand’s frequent flyer program. The companies reached an agreement in November 2021, but could not agree on commercial terms.

The main high street banks were among the brakes of the session. CBA eased 0.45%, ANZ 0.53%, NAB 0.65% and Westpac 0.23%.

Other markets

A rhythmic session on Asian markets saw China’s Shanghai Composite tumble 0.05%, the Asia Dow 0.54%, Hong Kong’s Hang Seng 1.48% and the Japanese Nikkei 0.06%.

US Futures Contracts slightly higher over the Labor Day long weekend. S&P 500 futures firmed three points or less than 0.1%.

Gold edged up 70 US cents or 0.04% to US$1,723.30 an ounce.

A buoyant greenback kept the dollar below 68 US cents. The Aussie was down 0.07% at 67.83 cents at the ASX’s close for the day.

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