Overnight signs that US inflation is easing: Aus shares 1% higher at noon

Market Reports

by Peter Milios

At noon, all sectors across the ASX are higher, after the release of the December jobs report data, as well as an economic activity survey. Both are signalling that the Fed’s continuous interest rate hikes have shown that inflation may be slowing down. 

Real Estate, Energy, and Industrials are leading the way.

The Australian dollar has passed US69c for the first time in four months, amidst signs of slower inflation rates.

Another contributing factor was last week’s backflip by Chinese officials to end the two-year ban on Australian coal exports amid worries about the winter energy shortages.

At noon, the S&P/ASX 200 is 1 per cent or 73 points higher at 7,182.30.

The SPI futures are pointing to a rise of 78 points.

Best and worst performers

The best-performing sector is Materials, up 1.55 per cent. The sector with the fewest gains is Information Technology, up 0.08 per cent.

The best-performing large cap is South32 (ASX:S32), trading 4.12 per cent higher at $4.425. It is followed by shares in James Hardie Industries (ASX:JHX) and New Hope Corporation (ASX:NHC).

The worst-performing large cap is Computershare (ASX:CPU), trading 4.36 per cent lower at $24.55. It is followed by shares in Mercury NZ (ASX:MCY) and ResMed (ASX:RMD).

Asian news

Asia-Pacific markets traded higher as Hong Kong and mainland China resumed quarantine-free travel over the weekend, signalling the end of zero-Covid policy which kept borders effectively closed for nearly three years.

South Korea’s Kospi rose 1.84 per cent, leading gains in the region. The Kosdaq gained 1.53 per cent in its first hour of trade. 

Japan’s markets were closed to observe Coming of Age Day, a public holiday.

December job growth higher than expected, but focus on easing wage pressures

December nonfarm payrolls increased by 223K, a bit higher than consensus for 205K but a downtick from November's downwardly revised 256K (was 263K). October also revised down to 263K from 284K. Release noted large job gains in leisure/hospitality, healthcare, construction, and social assistance. Unemployment rate moved down to 3.5 per cent from the previous month's 3.7 per cent, which was also the consensus. Labour-force participation also edged up to 62.3 per cent from November's 62.1 per cent. Lots of focus on inflation signalling from wages. Average hourly earnings were up 0.3 per cent m/m, softer than November's downwardly revised 0.4 per cent (originally printed at 0.6 per cent m/mm, which was notably hotter than forecast). Market reacted positively to the release, which also follows some promising inflation indications from other economic releases this week. And while December job growth slightly topped consensus, growth has slowed and a healthy labour market remains a key input for soft-landing hopes.

Big monthly pullback in December ISM Services

December ISM services index came in at 49.6, dropping into contraction for the first time since May 2020. Well below consensus for 55.0 and November's 56.5. New orders down to 45.2 vs prior month's 56.0. Employment component also dropped into contraction, with some notes of difficulty backfilling and a pullback in hiring amid economic uncertainties. Prices paid remained in expansion but dropped to 67.6 from November's 70.0 (sixth consecutive month near or below 70 after a nine-month streak above 80). Respondent commentary was somewhat cautious, noting slowing business conditions, continuing inflationary pressures, and headwinds from higher rates. Consistent with yesterday's final December Markit services PMI report (which ticked up to 44.7 from the flash 44.4 reading), which noted a sharp fall in business activity toward the end of the year. Elsewhere, November new factory orders were down 1.8 per cent m/m, worse than consensus for a 0.5 per cent decline and October's downwardly revised 0.4 per cent m/m rise (was up 1.0 per cent).

Fed officials keep talking but data matter more

Fed's Bostic said he expects the Fed to get rates to 5-5.25 per cent and hold them there. The most important thing the Fed can do is keep rates elevated, well into 2024. Also said he would be comfortable with 25 or 50 bp at the February meeting and would lean toward the former if the labour market loosens. In line with December FOMC minutes, he pushed back against rate cut expectations. Fed's Barkin pushed back against a tweak to the 2 per cent inflation target, noting it risks the central bank's credibility. Noted recent inflation data a step in the right direction but also pointed out it can take 6-12 months for demand pullbacks to reduce rate of inflation. Warned against repeat of the stop-start cycle of the 1970s, though stressed, a more gradual tightening path should limit harm to the economy. Nothing really surprising in the commentary as Fed remains unrelenting in its higher-for-longer messaging. However, the market still concerned Fed focused on lagging indicators and today's softer wage and ISM services data have helped push peak rate pricing back below 5 per cent.

Company news

LBT Innovations (ASX:LBT) has been engaged by AstraZeneca, to undertake a full product development project for the Company’s new APAS Pharma analysis module to be used on the APAS® Independence instrument. The partnership includes funding of AUD$1million for their development project, based on achieving technical milestones. LBT CEO and Managing Director, Mr Brent Barnes said: “This partnership is really exciting for the Company. AstraZeneca leads this field and is looking to innovate its processes and set the standard for others to follow. Our APAS® technology is ideally suited for the application of microbial quality control, able to improve consistency of results and drive standardisation across manufacturing sites.” Shares are trading 22.22 per cent higher at $0.066 at noon.

Tianqi Lithium Energy Australia proposes to acquire 100 per cent of Essential Metals Limited (ASX: ESS) by way of a Scheme of Arrangement, equating to a proposal of A$0.50 in cash per share. Commenting on the proposed acquisition, Tim Spencer, Managing Director of Essential said; “We believe this transaction is a great outcome for Essential shareholders and for other stakeholders.” Shares are trading 37.68 per cent higher at $0.475 at noon.

Sabre Resources (ASX:SBR) announced that the latest drilling intersections and new EM results demonstrate massive sulphide potential. In response, Sabre Resources CEO, Jon Dugdale, commented, “Significantly, the new EM anomaly is the strongest detected from surface to date. This indicates strong potential for additional massive sulphide discoveries in this new target zone.” Shares are trading 26.19 per cent higher at $0.053 at noon.

Commodities and the dollar

Gold is trading at US$1782.70 an ounce.
Iron ore is 2.2 per cent higher at US$119.80 a tonne.
Iron ore futures are pointing to a 2 per cent fall.
One Australian dollar is buying 68.99 US cents.

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