Evening Wrap: ASX 200 soars to a five month high powered by tech, miners and real estate

The S&P/ASX 200 closed 194 points higher, up 2.79%.

The local sharemarket surges to a five month high, finishing the week 3.25% higher, led by tech, real estate and materials. The nice inflation surprise has investors finally seeing the light at the end of this tightening cycle. Eyes on a potential lockout rally, Chinese lockdowns and strong US GDP numbers.

Let's dive in.

Markets

The ASX 200 powered to levels not seen since June thanks to a cooler-than-expected US inflation report. The market sees this as convincing evidence that inflation has peaked and expects a downshift in future Fed interest rate hikes.

• Technology led to the upside as falling bond yields and the revival of the Fed pivot inspired a return to risk assets

• Real Estate stocks, which have been smashed due to surging bond yields, also enjoyed a sharp upward rerate

• Materials rallied thanks to a meaningful selloff for the US dollar

• Energy stocks struggled to keep up with the broader markets as covid cases in China continue to climb, intensifying restrictions and lockdown risks

• Utilities was the only red sector as Origin Energy shares fell -3.5%, taking a breather after receiving a massive, non-binding takeover offer on Thursday, priced at $9.00 per share or a 54.9% premium

• 173 of the top 200 (87%) advanced

Economy

No major economic news. 

Commodities 

"Commodities gained as a risk-on tone was sparked by weaker than expected inflation data in the US. Sentiment was also boosted after Chinese leaders advocated a more targeted pandemic approach," said ANZ senior commodity strategist, Daniel Hynes.

"... reports coming out of a Politburo Standing Committee meeting that suggest Beijing would take more targeted measures to avoid damage to the economy. While it said it would stick with the zero-COVID strategy, it was the first official response to recent rumour that suggest a shift in strategy is forthcoming."

• Iron ore futures +2.9% to US$98.85 a tonne

• Copper +2.1% to US$3.8lb

• Aluminium +1.6% to US$2,350 a tonne

• Brent crude +0.6% to US$93.8 a barrel

Latest news

Post market brief

What a powerful, 'peak inflation' inspired rally. Although, as far as most ASX-listed stocks are concerned, they gapped up at the open and chopped around through to close.

The headline figure of 7.7% was below consensus expectations of 8.0% and down from 8.2% in September.

It was also interesting to see some diverging views from the Fed, with Philadelphia Fed President Patrick Harker saying "I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance.”

Whereas Cleveland Fed President Loretta Mester cheered the cool inflation print but said "there continue to be some upside risks to the inflation forecast."

Here are a few things I'm thinking about moving forward:

• Lockout rally: US dollar tumbles, yields ease and a Fed pivot is back in play. The market's staged a really powerful rally, but what if it continues to rally in such a powerful manner? No one likes to buy things that have gone vertical. What if we get ourselves a lockout rally?

• Chinese lockdowns: China's covid cases keep climbing, not only in Guangzhou but now Beijing as well. This is why commodity prices aren't running as hard while commodity stocks are surging. Could a full blown lockdown in China dampen this rally? Or better, give investors a pullback?

• US GDP: The Atlanta Fed's GDPnow model estimates Q4 GDP growth of 4.0%, up a full percentage point from initial estimates. Despite slowing growth concerns, there is no recession in sight. This is both a good thing and a potentially bad thing, as it might embolden the Fed to stay on course.

Index charts

S&P/ASX 200: Pushed through 7,000 with ease, closing near a three month high. Does this peak inflation narrative propel the markets? Do we even see a pullback? And if so, will it be a constructive pullback or extremely volatile, like most of the ones we've seen this year?

XJO chart (Source: TradingView)

Major announcements

Large caps (>$1bn)

• Imugene (IMU) +5.4% progressed its Phase 1 (metastatic advanced solid tumours) study, which evaluates the safety of its cancer-killing virus CF33-hNIS to the next stage

• Ramsay Health Care (RHC) +4.7% posted 6.7% earnings growth to $3.45bn for the September quarter but profits fell -24% to $81.1m. The company notes improved profit as quarterly covid-impacts eased from $44m in July to $5.9m in September

• Nine Entertainment (NEC) +4.4% entered into an agreement with Tennis Australia for rights to all premium Australian tennis for 2025-29 seasons 

• Pilbara Minerals (PLS) +0.9% secured a 10-year debt facility from the Australian Government for $250m 

Mid-to-small caps

• Accent Group (AX1) +11.6% said sales were up 52% year-on-year for the first 18 weeks of FY23 and margins were up 570 bps 

• Arafura Rare Earths (ARU) +7.6% improved the economics of its Nolans Project, with a base case NPV of $2.4bn and annual EBITDA of $573m

• Monash IVF Group (MVF) +1.7% AGM notes FY23 net profit is “expected to grow by greater than 10% compared to pcp” 

• Tietto Minerals (TIE) -8.1% added more high grade gold intercepts from infill drilling at its Abujar Gold Project in Cote D'ivoire

• Jervois Global (JRV) -19.8% successfully raised $231m at 42 cents per share,a 16.8% discount to its last close price

Broker updates 

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