ASX climbs to 11-year high as rate cut talks increase


The local market’s strong start was extended through the morning as weaker than forecast inflation increased the prospect of the Reserve Bank of Australia cutting rates sooner than expected, lifting equity prices.

The major banks took a strong lead from the inflation print, extending their gains from earlier in the session. Commonwealth Bank rose 1.3 per cent to $75.16, Westpac advanced 1.6 per cent to $27.58, ANZ climbed 1 per cent to $27.35 and NAB closed 1.2 per cent higher at $25.66.

Macquarie Group shares rose on Wednesday after news it would launch a mobile telco business was received favourably by the market. The new business, called Nu Mobile, will piggy-back on Telstra’s mobile network to sell mobile plans bundled with a used smartphone. Macquarie added 0.9 per cent to close at $135.77.

The major technology stocks were also among the market’s best performers. Wisetech Global advanced 4.7 per cent to $22.35, Altium rose 3.6 per cent to $34.28, Afterpay Touch climbed 3.6 per cent to $23.75 and Appen closed at $25.35, up 1.4 per cent.

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Healthcare stocks were also stronger, with CSL leading the market, adding 2.4 per cent to closed at $195.00. Sonic Healthcare advanced 3.6 per cent to $25.48 and Healius rose 3.5 per cent to $3.00.

Bellamy’s Australia shares rose 15.6 per cent to $11.12 after the company received approval from China’s market regulator, the State Administration for Market Regulation, for a new Bellamy’s branded formulation-series to be produced at the ViPlus Dairy facility in Toora, Victoria. The approval means the company is a step closer to being able recommence sale of its infant formula products in China.

Gold miners weakened across the board as the price of the precious metal hit its lowest point this year.

Independence Group slid 3.5 per cent to $4.63, St Barbara slid 1.6 per cent to $3.16 and Newcrest Mining declined 0.6 per cent to $24.75.

Northern Star Resources was among the market’s worst performers after announcing disappointing first quarter production results, driven largely by weakness at its Pogo operation in Alaska. It slid 2.5 per cent to $8.26.

Mineral Resources shares fell 1.4 per cent to $16.23. The company announced it had successfully completed its first foray into the US debt market, wrapping up a $US700 million ($990 million) issuance of senior unsecured notes on Wednesday.

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Stock watch

ALUMINA

Macquarie downgraded its recommendation on Alumina from “buy” to “neutral” and reduced its price target on the bauxite and alumina producer following the release of its first-quarter activities report. While the company’s production of bauxite and alumina were in line with expectations, the cash costs were 11 per cent higher than the broker had been forecasting. “The pending resumption of full production at Alunorte will likely weigh on the share price, despite a supportive dividend yield,” said analyst Hayden Bairstow. “This presents the key downside risk to our alumina price forecasts and hence our Alumina forecasts, given the 14 per cent decline in spot prices in the last two weeks.” Macquarie reduced its price target on Alumina from $2.80 to $2.35.

What moved the market

PRECIOUS METALS

Precious metal prices fell to their lowest level this year as Wall Street indices hit an all-time high and the US dollar continued to rise. The greenback is hovering near a 22-month peak against other major currencies, with strong US housing data easing concerns growth in the world’s largest economy was slowing. Both gold and silver have hit their lowest levels this year as investors appear more willing to take on heightened risk. The impact was also felt on the local sharemarket, as gold miners led the market losses on Wednesday and the prospect of rate cuts pushed investors towards riskier assets.

NICKEL

Nickel prices hit a two-month low on Tuesday as the London Metal Exchange returned from its long weekend break. Rising supply concerns, uncertainty over the Chinese economy and the rising US dollar put pressure on the base metal. The global nickel market deficit narrowed sharply in the first two months of the year to 5700 tonnes, down from 24,000 tonnes in the same period last year. Benchmark nickel on the London Metal Exchange slid 2.1 per cent to $US12,390 a tonne, its lowest price since February 19. The overall metal market was concerned that China could slow the pace of its policy easing after a stronger than expected economic performance.

AUSSIE DOLLAR

The Australian dollar dived heavily on Wednesday after a disappointing inflation print increased the prospect of the RBA cutting rates. Headline inflation for the quarter was flat, below expectations of a 0.2 per cent growth. “Wednesday’s data will put increasing pressure on the RBA to cut interest rates. Our expectation has been that the Bank would wait for further weakness in economic activity and the labour market before cutting rates in August,” said Capital Economics economist Ben Udy. “The risks are becoming increasingly skewed towards an earlier rate cut, perhaps as soon as May.” The Aussie dollar was trading at US70.37¢.

William McInnes covers markets from Sydney including editing the Markets Live blog.

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