ASX up 0.76% at noon as the Australian economy loses fewer jobs than anticipated

Market Reports

by Peter Milios

The ASX has responded strongly to the overnight news that US investors have mulled stronger-than-expected retail sales and the latest US inflation data.

In addition, the Australian economy lost over 11,000 jobs in January, which was lower than expected, and the unemployment rate increased to 3.7 per cent. In December, the job market had seen a surprise drop of 14,600 jobs.

All sectors are currently in positive territory, besides Energy and Utilities. Energy is currently down 0.93 per cent, which is far less than how the sector fared overnight in the US, closing down 1.78 per cent.

At noon, the S&P/ASX 200 is 0.76 per cent higher at 7,408.00.

The SPI futures are pointing to a rise of 54 points.

Best and worst performers

The best-performing sector is S&P/ASX 200 Consumer Discretionary, up 2.4 per cent. The worst-performing sector is S&P/ASX 200 Energy, down 1.3 per cent.

The best-performing large cap is Sonic Healthcare Limited (ASX:SHL), trading 12.01% higher at $32.55. It is followed by shares in Aurizon Holdings Limited (ASX:AZJ) and James Hardie Industries plc (ASX:JHX).

The worst-performing large cap is Whitehaven Coal Limited (ASX:WHC), trading 10.74 per cent lower at $7.32. It is followed by shares in New Hope Corporation Limited (ASX:NHC) and Evolution Mining Limited (ASX:EVN).

Asian news

Asia Pacific markets traded higher on Thursday as investors digested Japan’s record trade deficit of 3.5 trillion yen ($26 billion) – according to Refinitiv data that dates back to March 2006. Investors also digested a stronger than expected U.S. retail sales report from Wall Street.

The Japanese yen slightly strengthened following the trade data release – the Nikkei 225 rose 0.55 per cent and the Topix inched up 0.44 per cent. In South Korea, the Kospi rose 0.67 per cent and the Kosdaq rose 0.9 per cent.

January retail sales stronger than expected, NAHB builder confidence jumps by most in a decade

January headline retail sales were up 3.0 per cent, beating estimates for 1.7 per cent, and rebounding from December's 1.1 per cent decline. Retail sales ex-autos up 2.3 per cent, beating 0.7 per cent consensus and up from December's upwardly revised -0.9 per cent print (was -1.1 per cent). Retail sales ex-auto and fuel of 2.6 per cent hotter than estimate for 0.5 per cent and also higher than December's upwardly revised 0.4 per cent contraction (was -0.7 per cent). Control group sales, which feeds into GDP, was up 1.7 per cent, also ahead of consensus 0.8 per cent, while December revised up from -0.7 per cent to -0.4 per cent. Biggest gains in groups including department stores, restaurants/bars, cars. However, Treasuries sold off after the report as the market sees consumer strength adding upside risk to Fed tightening path. Elsewhere, the February Empire State index surged 27.1 points though still negative at -5.8, beating the estimate for -20.0. Report said that both input and selling price increases picked up, though firms expect conditions to improve somewhat over the next six months. February NAHB builder confidence rose seven points to 42, the biggest monthly increase since 2013 and highest print since September. NAHB highlighted rate tailwind, stabilisation off of late-2022 cycle low.

Bulls vs Bears

Recent repricing of peak rate and 2H rate cut expectations are still the big story in the market. This dynamic continued on Tuesday as a largely in line CPI print still fit with the recent pickup in scrutiny surrounding the disinflation momentum narrative. In just the last two weeks or so, peak rate expectations (Jul contract) have jumped nearly 50 bp to just under 5.30 per cent. Bonds have felt the bulk of the pain while equities have been fairly resilient even after a big January rally. This divergence remains a key talking point for the bearish camp, along with a dampened positioning tailwind, softer earnings and guidance metrics, a valuation overhang and some recent scepticism about the sustainability of the global liquidity offsets to QT. Bullish camp increasingly focused on a "no landing" narrative underpinned by the tight labour market and accompanying consumer/consumer balance sheet resilience (which bank executives talked up on Tuesday). This also supports some of the milder earnings reset scenarios, along with expectations for dampened input price and supply chain pressures as the year progresses, a resilient Eurozone economy (thanks to no energy crisis) and accelerated China reopening.

More debate over soft- or no-landing narrative

While markets have repriced in a steeper rate path than expected in recent weeks, some strategists remain optimistic about the growth outlook. Wells Fargo said the bear market is over and their base case is a non-hard landing, with the new scenario is growth taking off after an aborted landing. Recent press articles highlighted more traction for the "no landing" scenario, with economic data reflecting a reacceleration of the economy as inflation glides back toward more normal (though still-elevated) levels. However, the same growth dynamic could also become the biggest risk. A Bank of America survey of credit investors said that the biggest concern is no longer global recession, but instead that a resilient economy will mean more rate hikes and central bank policy errors. A note from Morgan Stanley last week cautioned that the no landing scenario is just a soft or hard landing waiting to happen, while Barclays economists warned last week that Fed policy has had less impact on labour demand than expected, forecasting 25 bp hikes through June as it's unlikely data will suggest weaker labour demand within the next few months.

Company news

Critical Resources (ASX:CRR) announced that their drilling program has identified a new mineralised zone south of Mavis Lake. In response, Critical Resources’ Managing Director Alex Cheeseman said, “These are further great results from Mavis Lake, identifying a new mineralisation zone has the ability to significantly increase the scale potential of the project, and is extremely encouraging.” Shares are trading 8 per cent higher at 5.4 cents at noon.

Matsa Resources (ASX:MAT) announced that strong gold intercepts have continued at Fortitude North Lake Carey Gold Project. In response, Matsa Executive Chairman Mr Paul Poli commented: “The thicker intercepts in the high grade shoots provide substantial volumes of gold not seen in previous drilling and certainly eclipse what we have seen at Fortitude Gold Mine.”Shares are trading 40.5 per cent higher at 5.2 cents at noon.

Goodman Group (ASX:GMG) has released its results for the half year ended 31 December 2022. The company achieved an operating profit of $877 million, an impressive 11.5 per cent increase from the first half of FY22, and they increased their operating earnings per security to 46.4 cents, up 10.7 per cent from last year. In response, Group Chief Executive Officer, Greg Goodman said, “Despite the volatility in the global economic environment, we delivered a strong operating performance and financial results, and we expect this to continue into the second half of FY23.”Shares are trading 0.3 per cent higher at $19.87.

Commodities and the dollar

Gold is trading at US$1782.70 an ounce.
Iron ore is 0.1 per cent lower at US$123.60 a tonne.
Iron ore futures are pointing to a 0.5 per cent rise.
One Australian dollar is buying 0.6899 US dollars.

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