The Australian sharemarket surrendered its early gains and finished almost flat after fresh inflation figures strengthened expectations that the Reserve Bank will raise interest rates next week. The S&P/ASX 200 fell 2.8 points, or less than 0.1 per cent, to 8847.30.
Consumer and energy stocks came under pressure, while technology shares, miners and banks helped limit the losses. The move followed data showing headline inflation increased to 4.3 per cent in September, from 4 per cent in August.
The Australian Bureau of Statistics said the rise was driven partly by a surge in petrol prices and higher construction costs. Petrol prices rose 9.4 per cent during September, after increasing 14.8 per cent in August.
The closely watched underlying measure of inflation also edged higher, reaching 3.6 per cent after the previous month’s figure was revised down to 3.5 per cent.
Reserve Bank governor Michele Bullock said a further interest rate rise would be considered at the central bank’s meeting on November 2 and 3. Speaking at a Senate estimates hearing, she said the economy’s fundamental challenge was its inability to grow without adding to inflationary pressure.
“Despite the unemployment rate recently rising a little more than we had expected, the labour market still seems a little tighter than we previously judged,” Ms Bullock said.
The combination of the inflation figures and the governor’s comments pushed financial markets to price in almost a 90 per cent chance of a rate rise next week. The yield on three-year government bonds rose by as much as eight basis points.
Robert Thompson, head of economics and rates strategy at Royal Bank of Canada in Sydney, said: “I think we can safely lock in a hike here. I would be shocked if the RBA didn’t lift rates given their rhetoric of late and the concerning detail in this report – core measures far too high, and key components lifting again.”
The Australian dollar strengthened to US70.31¢. It rose as much as 1.9 per cent against the New Zealand dollar to NZ$1.26, its largest intraday gain against the Kiwi in nine years, after New Zealand’s central bank unexpectedly left interest rates unchanged.
Technology stocks lead gains
Technology stocks were the strongest performers on the Australian market, drawing support from a rally on Wall Street fuelled by renewed enthusiasm for artificial intelligence.
WiseTech rose 1.5 per cent, TechnologyOne gained 0.9 per cent, Codan added 2.9 per cent and Megaport climbed 5.1 per cent. NextDC, which has been recovering from a $3 billion share sell-off last week, jumped 9.4 per cent after setting out its lending conditions and financial covenants and saying it remained compliant. It reported $8.67 billion in liquidity at the end of September.
Mining shares also advanced. Northern Star Resources rose 0.3 per cent, Evolution Mining gained 2.2 per cent and Newmont increased 0.5 per cent, although gold prices eased during the afternoon. BHP and Rio Tinto edged up 0.1 per cent and 0.2 per cent respectively, while South32 rose 1.6 per cent and Lynas Rare Earths gained 7.3 per cent.
By contrast, retailers fell as investors anticipated the effect of another rate rise on mortgage costs and household spending. Wesfarmers lost 2.1 per cent, JB Hi-Fi dropped 2.3 per cent, Harvey Norman declined 2 per cent and Super Retail Group fell 3.2 per cent.
Woolworths slipped 0.5 per cent despite reporting a 4.7 per cent rise in first-quarter sales to $19.4 billion. Coles, which is due to provide its first-quarter update on Friday, fell 1.2 per cent.
Three of the four major banks finished higher, with Commonwealth Bank up 0.6 per cent, Westpac gaining 1 per cent and National Australia Bank rising 0.3 per cent. ANZ finished unchanged.
Energy companies were the market’s weakest performers after oil prices fell for a second consecutive day. Woodside dropped 3.2 per cent, Santos fell 1.7 per cent, Ampol declined 3.8 per cent and Viva Energy lost 2.4 per cent.
Oil prices later recovered following a report that the United States could resume military strikes on Iran after next month’s midterm elections. Brent crude moved towards US$116 a barrel, while West Texas Intermediate rose above US$101.
Wall Street lifted by artificial intelligence stocks
US shares gained overnight as artificial intelligence companies rallied ahead of results from major technology groups and the Federal Reserve’s latest interest rate decision.
The S&P 500 rose 0.6 per cent, bringing it within 1.2 per cent of its record high set earlier this month. The Nasdaq composite added 1.2 per cent, while the Dow Jones Industrial Average gained 15 points, or less than 0.1 per cent.
Broadcom climbed 4 per cent after announcing a US$63 billion financing arrangement involving several Wall Street firms and Anthropic. Nvidia rose 0.9 per cent and CoreWeave, which rents artificial-intelligence chips to customers through the cloud, jumped 7.9 per cent.
Not all major companies benefited. Boeing fell 10.7 per cent after reporting a larger quarterly loss than analysts had expected, while Hilton Worldwide Holdings dropped 2.1 per cent after weaker-than-expected summer revenue and a warning of a greater impact from the Middle East.
