By Angus Dalton, Stan Choe and Alex Veiga
The Australian sharemarket has stared the week strongly with the ASX 200 gaining 1.5 per cent, or 109.7 points to 6688.4, just after midday on Monday.
The energy sector jumped 2.46 per cent and materials rose by 2.62 per cent as lithium stocks bounced back from a mid-month plunge. Core Lithium is up 13.1 per cent to $1.04.
Evolution Mining plummeted 21.6 per cent after announcing a Canadian gold mining operation had been plagued by pandemic-related delays.
Financials were up 1.75 per cent and the big four banks gained between 1.8 and 2.4 per cent.
Biotech company Imugene surged by 39.4 per cent after a trial of its HER-Vaxx cancer vaccine showed positive survival rates in patients with gastric cancer.
The sharemarket jumped in early trade following a Wall Street rally on Friday that saw the S&P500 record its best day in two years. The S&P500 rose by 3.1 per cent, its best session since May 2020.
Technology and banks led a 6.4 per cent weekly gain on the S&P500, erasing the brutal loss it took a week earlier, though it’s still close to 20 per cent below its record set early this year.
The Dow Jones Industrial Average rose 2.7 per cent and the tech-heavy Nasdaq ended 3.3 per cent higher. Both indices posted a weekly gain that more than made up for their losses last week.
The gains are a reprieve from Wall Street’s tumble through most of the year, caused by the Fed’s and other central banks’ slamming into reverse on the support fed into markets through the pandemic. In hopes of beating down punishingly high inflation, central banks have raised interest rates and made other moves that hurt prices for investments and threaten to slow the economy and cause a recession.
“It has been a good week,” said Randy Frederick, managing director of trading & derivatives at Charles Schwab. “It’s rare. At least in 2022, we’ve had only a couple of weeks where we ended up net positive. It looks pretty similar to what we saw right around the end of May, and that one of course fizzled out.”
The S&P500 rose 116.01 points to 3,911.74. The Dow climbed 823.32 points to 31,500.68. The Nasdaq rose 375.43 points to 11,607.62.
Parts of the US economy are still red-hot, particularly the jobs market, but some discouraging signals have emerged. A report on Friday confirmed sentiment among consumers sank to its lowest point since the University of Michigan began keeping records, hurt in particular by high inflation. Another lowlight this week suggested the US manufacturing and services sectors aren’t as strong as economists thought.
Such weakening data has raised concerns about the strength of the economy. But they also can be good for financial markets. They could mean less upward pressure on inflation, which would ultimately mean the Federal Reserve doesn’t have to raise rates so aggressively. And interest rates drive trading for everything from stocks to cryptocurrencies.
“We have seen a cooling off in a lot of areas, certainly. Gasoline purchases are down, housing prices appear to be cooling across the board,” Frederick said. “To me all of this speaks to the fact what the Fed is doing now appears to at least be having some impact. Now, whether or not it’s sufficient to bring inflation down, I don’t think we know yet.”
One nugget in the consumer sentiment report could carry particular weight for markets. It showed consumers’ expectations for inflation over the long run moderated to 3.1per cent from a mid-month reading of 3.3 per cent. That’s crucial for the Fed because expectations for higher inflation in the future can trigger buying activity that inflames inflation further in a self-fulfilling, vicious cycle.
Last week, the Fed hiked its key short-term rate by the biggest margin in decades and said another such increases could be coming, though they wouldn’t be common.
Over the last week, investors have been modestly ratcheting back their expectations for how high the Fed will hike interest rates into early next year.
That’s helped yields in the Treasury market recede. The yield on the two-year Treasury, which tends to move with expectations for the Fed’s actions, dropped back to 3.06 per cent from more than 3.40 per cent in the middle of last week.
The yield on the 10-year Treasury, which forms the bedrock for the world’s financial system, rose to 3.13 per cent on Friday from 3.07 per cent late Thursday. But it also has moderated after hitting 3.48 per cent last week.
It started the year just a bit above 1.50 per cent.
The vast majority of Wall Street was heading the opposite direction. More than 95 per cent of the stocks in the S&P 500 closed higher.
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