ASX200 saved from AU jobs mauling from China stimulus

The ASX200 trades 16 points (0.38%) higher at 7177 at 3pm AEST, 20 points below its intraday high of 7197, as a red-hot labour force report fuelled Reserve Bank Australia (RBA) rate hike fever.

Confounding those looking for evidence that the RBA’s cumulative 400 basis point (bp) of rate hikes to date have taken some of the heat out of a tight Australian labour market.

• Employment rose by 75.9k in May vs 17.5k expected.
• The unemployment rate fell to 3.6% vs 3.7% expected.
• The participation rate rose from 66.7% to 66.9%.

The extraordinarily strong jobs number will provide little comfort to the RBA, given its concerns about a tight labour market, rising wages and poor productivity feeding through into inflation.

Heading into the release, the interest rates market was pricing in a 25% chance that the RBA would raise rates by 25bp in July. However, post the jobs number, the rates market now sees a 55% chance the RBA will lift rates in July by 25bp to 4.35%.

Additionally, the RBA’s peak cash rate is being priced at 4.65% by November. This means the rates market is currently expecting two more 25bp rate hikes with a 25% chance of a third before year-end.

On an ordinary day, aggressive repricing in the rates market of this magnitude would usually be enough to send the interest rate sensitive ASX200 scurrying for cover. However, a move by China’s central bank today to cut another key interest rate saved the ASX200 from an almost certain mauling.

While the move in China today to cut its one-year lending rate by 10bp was expected after another key short-term rate was cut on Tuesday, it confirms a policy reversal is underway. Chinese authorities are expected to provide more stimulus to prevent a double-dip slowdown of the Chinese economy as growth and activity data continues to falter.

The prospect of more stimulus in China, was music to the ears of the big iron ore miners. Fortescue added 3% to $22.35, Rio Tinto added 0.84% to $117.13, and BHP added 0.33% to $46.05. Coal miners also gained, led by Coronado Global, which added 3.8% to $1.44, New Hope Coal added 3.3% to $5.49, and Whitehaven Coal added 1.84% to $6.38.

Taking its lead from overnight gains in the Nasdaq, the ASX200 IT sector has gained, led by Xero, which added 2.2% to $113.77, Wisetech Global added 1.46% to $79.44 and Nextdc added 1.39% to $12.80. In contrast, Appen fell 6.9% to $2.63 as 16 million new shares hit the market after its capital raise last month.

Despite the prospect of further RBA rate hikes, the ASX200 Financial sector marched bravely higher led by Macquarie Bank which added 2.76% to $182.95. ANZ added 1.33% to $23.23, NAB added 1.06% to $25.78, CBA added 0.82% to $98.18, and Westpac added 0.41% to $20.64.

Biotech giant CSL fell 2.52% to $280.00, extending its 6.89% tumble from yesterday after it lowered its 2024 earnings guidance by $500m to $US2.9-$US3bn from $US3.5bn due to foreign currency headwinds.

The ASX200 is encapsulated with an ever-tightening range. On the downside, a sustained break below the 200-day moving average at 7117 and the recent 7077 low would be problematic and lead to a test of year-to-date lows at 6900. Conversely, a break above the downtrend resistance at 7250 (from the Feb 7567 high) and then above the mid-May highs 7290 area would be a positive development and put 7400 on the market’s radar.