ASX futures had risen 3 points or 0.04 per cent to 7353 by 8.00 am AEST, indicating an upbeat start for trade.
US inflation matched its fastest pace since 1982, though the news barely fazed stocks on Wednesday.
The S&P 500 rose 0.3 percent, and the Dow Jones Industrial Average increased 0.1 percent. The tech-heavy Nasdaq Composite Index rose 0.2%.
Investors on Wednesday pored over data showing that the consumer-price index a key measure of what consumers pay for goods and services climbed 7%, in December compared with the same month a year earlier, following a 6.8% year-over-year increase in November. That is the fastest pace in 40 years and the third month in a row inflation has outstripped 6%. But the readings were largely in line with expectations.
Locally the S&P/ASX 200 closed 0.7% higher at 7438.9, courtesy of a recovery in commodity, tech and health stocks. The benchmark rose more than 1.0% in early trade, adding to a positive lead from US equities.
It snapped a two-day losing streak, although it pared gains and is down 0.2% so far this week. The energy sector was the biggest gainer, rising 3.0% on the back of higher oil prices. Shares of lithium, gold and iron ore producers also gained, though Fortescue lost 1.1% after Citi trimmed its rating on the stock to sell from neutral.
Consumer-staples shares once more weighed on the market following concerns that staff shortages related to Covid-19 are disrupting the flow of goods.
The pan-continental Stoxx Europe 600 rose 0.6 percent overseas. Chinese tech stocks such as JD. com and Meituan surged on Wednesday. Hong Kong’s Hang Seng Index soared 2.8 percent and China’s Shanghai Composite climbed 0.8 percent. Shares in Japan’s Nikkei 225 rose 1.9%.
In commodities, gold futures added 0.5% to $US 1827. 00 an ounce; Brent crude rose 1% to $US 84. 54 a barrel; Iron ore gained 2.3% to US$131.60 a tonne.
In bond markets the yield on the 10-year Australian bond dipped to 1.84% while US 10-year Treasury yields eased to 1.73%.
The Australian dollar surged to 72.85 US cents around 8. 00 am AEST, compared to a previous close of 72.09. The WSJ Dollar Index, which compares the US dollar with 16 other currencies, dropped to 88.99.
Asia
Chinese shares rose, following broad gains in other stock markets around Asia. The Shanghai Composite Index rose 0.8% while the Shenzhen Composite Index advanced 1.4% and the ChiNext Price Index added 2.6%. Shares of electric vehicle-related firms were firmer after recent data showed that electric vehicle sales led the growth of China’s passenger car sales in 2021. Ganfeng Lithium climbed 3.4%, battery maker CARL was 5.3% up and automaker BYD Co. rose 7.1%.
China property space will still be in focus after recent scrutiny it attracted after IG’s watch on Shimao Group, one of the country's largest developers by contracted sales, and liquidity and debt servicing profile, it says.
Chinese tech stocks surged in Hong Kong, boosted by gains in the US ADR market overnight. JD. com was the biggest gainer, up 9.9% in the wake of mostly favorable estimates of the e-commerce company’s 4Q showing from analysts, and after opening its first physical retail outlet in Europe. Other stocks that were gaining included Meituan, which climbed 9.3 percent, Alibaba Group, which rose 4.7 percent, and Tencent Holdings, which was up 3.2 percent. The Hang Seng Tech Index extends its recent rallying trend and climbs 3.9%. It helped propel the benchmark Hang Seng Index to a four-week high, gaining 2.1%.
Japan stocks closed up, powered by higher energy and technology stocks after recent rising momentum of government bond yields cools. Oil explorer Inpex rose 6.8% while SoftBank Group added 6.0%. The Nikkei Stock Average gained 1.9%. The government’s response and Covid-19 trends are in focus.
Europe
European shares ended higher on the back of US inflation data that showed it rose in December but was in line with estimates. The pan-European Stoxx Europe 600 rose 0.65 percent.
But energy and mining shares were among the best-performers as a lower dollar raises commodity prices.
Equities could perhaps take back some Tuesday’s gains were Wednesday’s US inflation data to exceed expectations, but it was in line with the majority of forecasts, IG analyst Chris Beauchamp says. “So markets were able to take a more sanguine view and could at least enjoy a few hours without fear of how soon the next Federal Reserve rate hike will arrive.”
In London, the FTSE 100 rose 0.8%. Gains were led by mining companies, aided by stronger metal prices. Shares in copper producer Antofagasta climbed 7.5%. The big four were also in the black, with BHP up 4.5%, Anglo American 3.9%, Glencore up 3.5% and Rio Tinto 2.8% higher. Oil companies lagged, with shares of BP up 3.2% and Shell up 2.7%.
“The weaker dollar and the subsequent rebound in commodity prices has been good news for the FTSE 100’s big-name mining and oil contingent,” Beauchamp said.
North America
US inflation raced to its fastest pace since 1982, but stocks on Wednesday shrugged off the news.
The S&P 500 rose 0.3 percent, and the Dow Jones industrial average was up 0.1 percent. The technology-rich Nasdaq Composite Index rose 0.2%.
Markets had been focused on anything that could change expectations for when the Federal Reserve might begin raising interest rates, possibly as soon as March. Fed Chairman Jerome Powell on Tuesday described high inflation as a “severe threat” to a complete economic recovery and said the central bank was set to lift interest rates because the economy no longer required emergency aid.
Investors on Wednesday focused on data showing the consumer-price index which tracks what consumers pay for goods and services rose 7% in December compared with a year earlier, up from 6.8% in November. That is the highest rate in 40 years and the third consecutive month in which inflation topped 6 percent.
But the numbers were mostly in line with expectations.
“I think the markets are coming to believe that inflation is about to peak,” said Darrell Cronk, chief investment officer for wealth and investment management at Wells Fargo.
Luca Paolini, chief strategist at Pictet Asset Management, said he anticipated inflation should peak this quarter, though he is still monitoring to see whether higher inflation weighs on profit this earnings season.
Trading has been choppy this week, following a bumpy start to 2022 that saw Treasury yields surge and tech stocks sink. Government officials said leading to investors finding out last week that the central bank could increase rates sooner than previously expected.
In interest rate environments that are as low as they are now, investors load up on risk assets like stocks to earn returns. As inflation heats up and policy makers hike rates, the value of companies’ future profits declines and investors have more options for places to earn money. This especially punishes technology stocks that promise growth in future profits. The Nasdaq Composite is lower by 2.9% in 2022 while the S&P 500 is down 0.8%.
Investors have been watching closely as the central bank has signaled it is prepared to raise rates and reduce its asset holdings. Fed officials in December approved a plan to retire their asset purchases more quickly, or taper, a sort of economic stimulus.
“I think the market has been well prepared at this point for the taper and the rate increases,” said Mace McCain, president and chief investment officer at Frost Investment Advisors. “They can once again look ahead to what’s going to be a strong earnings season.”
Analysts estimate profits of companies in the S&P 500 grew by 22% in the fourth quarter from last year, according to FactSet. Delta Air Lines is due to report on Thursday, while JPMorgan Chase, Wells Fargo and Citigroup are scheduled to report on Friday.
Materials stocks were among the top performers in the S&P 500’s sectors in recent trading, while the healthcare group underperformed.
In individual stock news, Biogen shares fell 6.7% after officials from Medicare said they would cover its Alzheimer’s drug Aduhelm on the condition that patients were in clinical trials and had early-stage symptoms.
Jefferies Financial Group shares fell 9.3% after the company posted earnings and revenue for the latest quarter that were below analysts’ expectations. Jefferies said it was affected by tough market conditions for fixed-income trading.
The yield on the benchmark 10-year Treasury note fell to 1.724 percent on Wednesday from 1.745 percent on Tuesday, when the rally in government bond yields was put on hold. Prices and yields move in opposite directions.
