Weekly Wrap: A Glimmer of Hope: ASX Rallies Amid Economic Uncertainty
After enduring a savage week, the Australian share market rose to reduce some of the worst losses that decisively marked an end to a month-long rally.
By the close of trade on Friday the ASX 200 added back 0.5% or 44.7 points to 8871.2 points with nine out of 11 sectors in positive territory.
The usual suspects were the best performers with technology, real estate and gold stocks all adding a spurt to end the week.
Much of the stronger performance represented an overlap from a stronger US market which in turn drew comfort from weaker US private payroll data and higher weekly jobless numbers.
Weak US jobs help to push shares higher
In the perverse sort of reaction we’ve become accustomed to, weak economic figures lead to a greater certainty of lower interest rates from the Federal Reserve which in turn acts as a strong buy signal.
The US market is now more convinced than ever that it will be dealing with lower official interest rates in just a couple of weeks, which brought out the animal spirits and helped to set some record highs.
Banks Rally
The banks were largely stronger with the exception of the flat Commonwealth Bank (ASX: CBA), with National Australia Bank (ASX: NAB) up 0.8% to $43.17, Westpac (ASX: WBC) up 0.7% to $38.17 and ANZ (ASX: ANZ) up 0.3% to $33.29.
Most of the technology sector was up with Life360 (ASX: 360) up 3.1% to $45.70, Zip (ASX: ZIP) up 4.7% to $4.50, NextDC (ASX: NXT) up 2.8% to $16.52 and Xero (ASX: XRO) up 1.2% to $158.90.
The joy wasn’t universal for the sector with shares in WiseTech (ASX: WTC) still falling, down 1.4% to $93.56 and DroneShield (ASX: DRO) down a further 3.2% to $3.03.
Gold Still Glowing Bright
Once again gold stocks followed spot prices higher, with some of the more notable risers including Regis Resources (ASX: RRL) shares which added 5.6% to $5.09, Genesis Minerals (ASX: GMD) up 5.5% to $5.36 and Vault Minerals (ASX: VAU) up 5.3% to 60c.
It was also a reasonably strong day for the real estate sector with Mirvac (ASX: MGR) rising 1.7% to $2.34, Charter Hall (ASX: CHC) up 2.6% to $23.30, GPT Group (ASX: GPT) up 1.1% to $5.42 and data centre developer Goodman Group (ASX: GMG) up 2.1% to $33.48.
Consumer stocks also joined in the rally with department store group Myer (ASX: MYR) up 3.8% to 69¢, while JB Hi-Fi (ASX: JBH) and Wesfarmers (ASX: WES) both jumped 1.8% and Harvey Norman (ASX: HVN) grabbed a 1.1% share price rise to $7.42.
Higher underlying earnings for Orica (ASX: ORI) pushed its shares 1.2% to $21.01.
The Week Ahead
Once again, the future direction of interest rates will be closely watched by market observers after the RBA finally pulled the trigger on a third cash rate cut on August 12.
While further easing is likely at some stage this year, the consumer and business confidence surveys out in the coming week will be closely watched by traders after economic growth figures last week surprised on the upside.
While US rates are expected to be cut at the FOMC policy meeting on September 16-17, the next Australian rate cut might be heading further into the future given strengthening domestic conditions.
Inflation Numbers Could Confirm Rate Cut
The European Central bank is likely to keep its deposit rate set at 2% this week, despite worries about political instability in France and general high debt levels in the Eurozone while in the US the inflation numbers will influence the chances of a rate cut by the Federal Reserve.
Tariffs are expected to boost both the headline and core US Consumer Price Indices for August by 0.3% with the annual headline rate set to rise from 2.7% to 2.9% while the core rate is expected to stabilise at 3.1%.
Will Dividends be Reinvested?
Here on the Australian share market, there are some company investor meetings that could point to how companies are trading in the new financial year while more than $700 million in dividend payments are due to land in investor’s bank accounts during the week.
If the bruising past week is any guide, not much of that cash can be expected to flow back into the share market.