ASX edges up despite weaker banks as inflation cools

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The lowdown:

Gary Glover, senior client adviser at Novus Capital, said the inflation figures released by the Australian Bureau of Statistics on Wednesday were a key factor in the turnaround of markets after a weak start to the day.

“The consumer price index number today was high but showed that inflation is starting to come down,” he said. “It doesn’t have to come down to 2 or 3 per cent for there to be a decent rally in markets.”

The consumer price index came in softer than investors were expecting at 6.8 per cent in the year to February, down from 7.4 per cent in January.

Glover said the prospect of slowing inflation was a positive for growth stocks and banks but that the rally in energy and materials companies was the result of strong commodity prices.

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“Energy and materials were up because commodities like gold and oil were up last night,” he said.

Meanwhile, stocks were mixed as Wall Street regained some stability at the tail end of what’s been a turmoil-filled month.

The S&P 500 dipped 0.2 per cent, though the majority of stocks within the index rose. The Dow Jones slipped 0.1 per cent and the Nasdaq composite fell 0.4 per cent.

There was relative calm even in the bond market, which has been home to some of Wall Street’s wildest moves since fears flared about the banking system earlier this month. Yields were rising only modestly following their historic-sized moves in prior weeks.

Shares in Chinese online giant Alibaba closed 14.2 per cent higher after the e-commerce behemoth announced is splitting itself into six business groups as it attempts to become more nimble in reacting to changes in the market and increase the value of those units.

This month has been dominated by worries that banks around the world may be cracking under the pressure of much higher interest rates. But some calm has returned to the market recently after regulators made big moves to protect the system.

‘I think the global central banks have put us in that middling zone, where we’re waiting for clarity on: are they done?’

Rob Haworth, at US Bank Wealth Management.

That has much of Wall Street’s attention back on interest rates and what central banks will do next with them. The US Federal Reserve and other central banks have a tough decision: inflation is still high, which would typically call for even higher interest rates. But the weakness for banks has shown some fragility in the system that higher rates could worsen.

“I think the global central banks have put us in that middling zone, where we’re waiting for clarity on: are they done?” said Rob Haworth, senior investment strategist at US Bank Wealth Management.

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Traders built bets on Tuesday to say the Fed will raise rates at its next meeting in May, though the slight majority is still calling for it to hold rates steady.

Apple, Microsoft and other big tech stocks were among the heaviest weights on the S&P 500 on Tuesday after dipping modestly.

Other stocks were mixed, including financials that had a turbulent month. Most of those in the S&P 500 rose, but some banks that investors have highlighted as most at risk fell after erasing gains from the morning.

First Republic fell 2.3 per cent, while PacWest Bancorp was down 5 per cent.

Such drastic shifts in expectations for the Fed have led to huge swings in the bond market. On Tuesday, yields were rising only slightly.

The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, rose to 3.55 per cent from 3.54 per cent late on Monday.

The two-year yield, which moves more on expectations for the Fed, rose to 4.05 per cent from 4.01 per cent late Monday. It was above 5 per cent earlier this month and at its highest level since 2007.

Tweet of the day:

Quote of the day:

“Demand for A-grade stock has been positive since COVID lockdowns finished in clear evidence of tenants trading up,” said Tony McGough, head of research and consulting at Knight Franks, as demand for premium office space reflects the ‘flight to quality’ trend, despite slowing global economic growth.

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