Australian shares are surging, after weaker-than-expected inflation figures drove the biggest gains on Wall Street in more than two-and-a-half years.
Key points:
- The benchmark US share index posted a 5.5 per cent rally overnight
- Australia's major share indices have followed with gains around half that level
- The Australian dollar jumped by more than 2 US cents as the greenback fell on weaker-than-expected US inflation figures
The benchmark ASX 200 index closed up 2.8 per cent at 7,158 points, while the broader All Ordinaries ended 2.9 per cent higher at 7,350.
That has the market value of Australian stocks up by close to $70 billion in a single session.
Almost all sectors of the market were higher, led by surges for industrials, education and discretionary retailers.
Technology stocks also generally performed strongly, following the Nasdaq's lead on Wall Street.
The strongest individual gains were Megaport (13.6 per cent), Pinnacle Investment Management (12.5 per cent), Netwealth (11.7 per cent), payment services provider and Afterpay owner Block (11.5 per cent) and Pro Medicus (11.5 per cent).
Utilities was the only sector trading lower.
Just 15 of the top 200 companies on the market were posting losses, with coal miners Whitehaven (-3.5 per cent) and New Hope (-2.8 per cent) among the worst performers, along with Origin (-3.2 per cent) and Computershare (-2.9 per cent).
CBA commodities analyst Vivek Dhar said there was some caution in commodity prices, despite the general market exuberance due to China's current economic weakness.
"The increase in COVID-19 cases in China and potential for a severe lockdown in the southern city of Guangzhou pose adverse risks to China's commodity demand," he noted.
The Australian dollar also surged dramatically overnight, leaping more than 2 US cents, from just below 64 US cents to just above 66 US cents.
After losing a little ground in the middle of the day, it jumped again later on, climbing to 66.5 US cents by 5:00pm AEDT.
Cooling US inflation drives market frenzy
The dramatic local market moves were a smaller ripple of the wave of buying that swept the US markets overnight, as inflation figures came in weaker than expected.
For the first time in eight months, the Labor Department's data showed the annual Consumer Price Index (CPI) number below 8 per cent.
"This is a big deal," King Lip, chief strategist at Baker Avenue Asset Management in San Francisco, told Reuters.
"We have been calling the peak of inflation for the last couple of months and just have been incredibly frustrated that it hasn't shown up in the data. For the first time, it has actually shown up in the data."
The headline US CPI was 7.7 per cent over the year to October, the smallest increase since January and down from 8.2 per cent in September.
While the 0.4 per cent monthly increase in prices was the same as the September figure, a measure that excludes energy and food halved from 0.6 per cent in the previous month to 0.3 per cent in October.
That has been taken as a sign that so-called "core" inflation — which excludes the more volatile commodity-driven price moves — is starting to come under control in response to rapidly rising interest rates.
"What's evident is that the COVID-related surge in goods inflation is starting to unwind in earnest, as reflected in further steep declines in used car prices and clothing," wrote BetaShares chief economist David Bassanese.
"But some re-opening service-sector price inflation also eased, with airline fares down 1 per cent after recent strong gains."
Slower US interest rate hikes on the cards
San Francisco Federal Reserve president Mary Daly and Dallas Fed president Lorie Logan welcomed the most-recent inflation data, but warned that the fight with rising prices was far from over.
However, the inflation data prompted traders to adjust rate hike bets, with the market now strongly tipping the US Federal Reserve will slightly slow the previous breakneck pace of interest rate rises.
According to the CME FedWatch tool, the odds of a 0.5-percentage-point Federal Reserve rate hike in December, rather than a 0.75-percentage-point hike, jumping to about 85 per cent from 52 per cent before the data was released.
Mr Bassanese agreed with the market assessment, but thinks an even smaller rate rise may be possible.
"The CPI result likely cements the case for the US Federal Reserve to raises rates by no more than 0.5 of a percentage point at the December policy meeting," he predicted.
"Depending on extent of slowing in the real economy in coming weeks, there's even a chance the Fed only raises rates by 0.25 of a percentage point in December."
However, he also says US interest rates will have to rise far enough to sink the world's biggest economy into recession.
"My base case view remains that US inflation will remain sufficiently problematic in coming months that the Fed will have no choice but to keep raising rates in a way that ultimately tips the US economy into recession," he said.
"In turn, this suggests that global equity markets have yet to hit bottom, notwithstanding a potentially solid 'bear market rally' in coming weeks in expectation of a smaller US Fed rate increase next month."
Lower rate peak good news for shares, tech
Expectations of slower rate rises and a possible lower peak for interest rates have triggered a massive rally on Wall Street, particularly for the embattled tech sector.
The S&P 500 and Nasdaq jumped on Thursday, racking up their biggest daily percentage gains in more than two-and-a-half years.
One-time Wall Street darlings tarnished in 2022's bear market were among Thursday's strongest performers, with graphics chip maker Nvidia jumping about 14 per cent, Meta Platforms (Facebook) climbing 10 per cent, and Alphabet (Google) rising 7.6 per cent.
Growing recession worries have hammered Wall Street this year. The benchmark S&P 500 remains down about 17 per cent year to date, and it is on course for its biggest annual decline since the global financial crisis of 2008.
Amazon.com surged more than 12 per cent after the Wall Street Journal reported that the e-commerce heavyweight was reviewing unprofitable business units to cut costs.
Overall, the S&P 500 surged 5.5 per cent, to end the session at 3,956 points.
The tech-focused Nasdaq soared 7.4 per cent, to 11,114 points, while Dow Jones Industrial Average rose 3.7 per cent, to 33,715 points.
All 11 S&P 500 sector indexes rallied, led by information technology, up 8.3 per cent, followed by a 7.7 per cent gain in real estate.
The Philadelphia semiconductor index surged 10.2 per cent, cutting its loss in 2022 to about 32 per cent.
The CBOE volatility index (VIX), also known as Wall Street's fear gauge, fell to a near two-month low of about 23 points.
Some investors urged caution that Thursday's rally might be overdone.
"The market is — as it has been a few times this year — very eager to trade a 'Fed pivot'," Zach Hill, head of portfolio management at Horizon Investments in Charlotte, told Reuters.
"But we think the market is getting a little ahead of itself, based on one print."
The PHLX Housing index also jumped 10.3 per cent to its highest since August, after tumbling this year over concerns about higher mortgage rates denting affordability.
Rivian Automotive Inc surged 17.4 per cent, after the electric-vehicle maker reported a smaller-than-expected loss, higher number of pre-orders and reaffirmed its full-year production outlook.
The blue-chip Dow has now also recovered about 17 per cent from its closing low on September 30, and it remains down about 9 per cent from its record high close in early January.
Advancing stocks outnumbered falling ones within the S&P 500 by a 26.9:1 ratio.
Volume on US exchanges was also heavy, indicating that the rally was widely supported, with 14.9 billion shares traded, compared to an average of 11.9 billion shares over the previous 20 sessions.
ABC/Reuters