ASX rallies on the back of expected US inflation data: Aus shares up 1.06% at noon

Market Reports

by Peter Milios

All sectors, except for Utilities, have opened higher today, ahead of tomorrow’s release of the US consumer price index data. Analysts are expecting the CPI data to cool by 0.1 per cent in December.

Coal stocks are down as coal prices have fallen. TerraCom (ASX:TER) is down 6 per cent, Whitehaven Coal (ASX:WHC) is down 1.75 per cent, whilst Yancoal has dropped by 2.38 per cent.

On the other hand, iron ore is flying ahead of expectations that demand for steel will increase with the easing of China’s lockdowns. Fortescue Metals (ASX:FMG) is up by 2.3 per cent, Rio Tinto (ASX:RIO) has increased by 1.66 per cent, whilst Champion Iron is up 1.16 per cent.

At noon, the S&P/ASX 200 is 1.06 per cent or 76 points higher at 7,271.50.

The SPI futures are pointing to a rise of 77 points.

Best and worst performers

The best-performing sector is Materials, up 1.26 per cent. The worst-performing sector is Utilities, down 0.48 per cent.

The best-performing large cap is Pilbara Minerals (ASX:PLS), trading 2.76 per cent higher at $4.09. It is followed by shares in IGO (ASX:IGO) and Xero (ASX:XRO).

The worst-performing large cap is New Hope Corporation (ASX:NHC), trading 2.12 per cent lower at $6.01. It is followed by shares in Meridian Energy (ASX:MEZ) and Yancoal Australia (ASX:YAL).

Asian markets

Asia-Pacific shares have notched gains as investors look ahead to the US consumer price index report Thursday. Economists expect inflation to have cooled in December, which could signal to the Federal Reserve that previous interest rates hikes have had their intended effects.

The Nikkei 225 rose 0.22 per cent, while the Topix climbed 0.21 per cent. Similarly, the Kospi advanced 0.58 per cent and the Kosdaq added 0.53 per cent.

China and India’s inflation data for December are also slated for release. Australia will also report its trade data for November.

Sectors higher with consumer discretionary, materials among the leaders

Wednesday's session saw roughly equivalent upside across both value and growth factors. Consumer discretionary saw broad gains, including homebuilders on several upgrades at BofA, while auto complexes (particularly EV space), retail also rallied. Chemicals also saw some gains from BofA upgrades. FANMAG complex (particularly AMZN-US ) and software mostly higher. Meme stocks rallied, including BBBY-US , GME-US , and AMC-US . Travel and leisure mixed with some weakness in gaming (particularly China-linked names) though hotels, airlines (despite some downgrades and today's FAA outage), cruise lines, OTAs (EXPE-US upgrade) better. REITs also had a good day amid the Treasury rally. Among underperformers, several Chinese internet names were weaker, while select semis gave back some recent gains. Energy weaker despite another up day for crude with oil services, integrateds among the worst groups. Pockets of defensives/safe havens also underperformed, including food, HPC, tobacco, telecom, and dollar stores.

Boston Fed's Collins voices support for 25 bp hike in February

In an interview with NY Times, Boston Fed President Susan M. Collins (2023 non-voter) said she is leaning toward a 25 bp hike at the next Fed meeting, which ends 1 February. Collins argued that adjusting at a slower pace gives the Fed more time to assess incoming data before making policy decisions as it approaches a pausing point, though also said she favours raising in quarter point increments over the next three meetings to bring the benchmark rate to just above 5 per cent. Markets are pricing in a ~75 per cent chance of a 25 bp hike for February, though only one additional hike in March to a peak range of 4.75-5.0 per cent before two cuts by year end. However, Fed officials have been unrelenting in the raise-and-hold messaging including Atlanta's Bostic (non-voter) this week (Bloomberg), as officials including Chair Powell have continued to point to the December SEP that shows no rate cuts until 2024. FT also highlighted risk of Fed pausing only to then continue tightening, citing investors who say the Fed pause could lead to a further loosening of financial conditions and resurgence in inflation.

CPI out tomorrow

Inflation in focus this week on the economic calendar with December CPI out on Thursday at 08:30 ET. Headline CPI expected unchanged following a 0.1 per cent m/m increase in November, pushing the y/y rate of growth down to 6.5 per cent from 7.1 per cent. Core CPI expected to increase 0.3 per cent m/m following a 0.2 per cent gain in November, pushing the y/y rate of growth down to 5.7 per cent from 6.0 per cent. Previews have been fairly consistent from a thematic perspective. Energy prices expected to remain a drag on the headline reading with the Street highlighting a nearly 13 per cent decline in retail gas prices. However, food price inflation is expected to remain elevated. Core goods prices saw posting a third straight monthly decline amid headwinds from a further softening in used-vehicle prices and outsized discounts on apparel and household goods over the holidays. On the core services side, shelter inflation expected to remain sticky though previews did flag some early reprieve from softer new rental pricing. Motor vehicle insurance is another component likely to remain elevated.

Company news

Euro Manganese (ASX:EMN) has announced an offtake term sheet with Verkor, a low-carbon battery manufacturer based in France, for the sale of high-purity manganese sulphate monohydrate. The term sheet is non-binding. In response, Dr Matthew James, President & CEO of Euro Manganese, commented, “I am immensely proud of the team and their hard work in negotiating the first long-term offtake term sheet, with a pricing structure, from a Western supplier in the high-purity manganese market.” Shares are trading 1.49 per cent higher at $0.34 at noon.

Golden Deeps (ASX:GED) has announced that exceptionally high grade metal concentrates at their project in Namibia. In response, Golden Deeps CEO Jon Dugdale said: “The testwork results open the door to replicating the process for the Nosib discovery and then completing downstream testwork to produce high-value battery metals products.” Shares are trading 10 per cent higher at $0.011 at noon.

Bastion Minerals (ASX:BMO) has announced that further high grade gold intercepts have been found at their project in Chile. In response, Bastion’s Executive Chairman, Mr. Ross Landles, commented: “Drilling at Capote confirms the vein system has high-grades, including near surface intervals. Now that we have received all the results from our maiden drilling campaign we will assess the future resource potential and sites for further drilling.” Shares are trading 6.25 per cent higher at $0.034 at noon.

Commodities and the dollar

Gold is trading at US$1782.70 an ounce.
Iron ore is 1.5 per cent higher at US$124.00 a tonne.
Iron ore futures are pointing to a 0.53 per cent rise.
One Australian dollar is buying 69.17 US cents.

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