ASX recovers as fears of rapid US rate hikes and bank crisis subside

The local share market has recovered slightly from yesterday’s heavy losses, while the Australian Energy Regulator has revealed power prices will rise by around 20 per cent in several states.

Wall Street rebounded overnight as largely on-target inflation data and waning fears over contagion in the banking sector cooled investors’ nerves.

The Australian share market has finished trading with solid gains, essentially tracking a relief rally on Wall Street.

The ASX 200 closed 0.9 per cent higher, at 7,068 points.

Today’s best performing stocks were in tech-related sectors, including PEXA (+6.4%), Link Administration (+6%), Xero (+4%) and Block (+3.9%), along with coal miners Coronado Global Resources (+5.4%) and Whitehaven Coal (+3.7%).

On the flip side, miners were some of the weakest performers including Evolution Mining (-3.2%) and Chalice Mining (-1.8%), along with Domino’s Pizza (-1.7%), Allkem (-1.5%) and Imugene (-4%).

Investors piled back into stocks as as worries about contagion in the banking sector (following the collapse of Silicon Valley Bank) last week eased.

Investors were also relieved after February’s US inflation report on Tuesday (local time) showed consumer prices rising by 0.4% (with a year-on-year gain of 6%).

US rate hike bets

That was in line with analyst expectations, as there were worries that stronger than expected data might lead the Fed to go for jumbo-sized (50 basis point) hikes to battle inflation.

As recently as last week, markets were braced for the return of large Fed hikes but the swift collapse of SVB has changed those expectations, with market pricing in an 80% chance of a 25 basis point hike next week.

“It does feel like the 50 basis point move for this month’s meeting that was speculated about especially after [Fed chair Jerome] Powell’s commentary to the Senate Banking Committee,” said Robert Carnell, regional head of research, Asia Pacific at ING.

Nobody’s expecting that anymore.”

US bond market recovers from plunge

US Treasury yields extended their gains into the Asia-Pacific trading hours, after sharp declines at the start of the week.

The yield on 10-year Treasury notes was up 3.8 basis points to 3.674%.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 6.9 basis points at 4.294% (but far off last week’s peak of 5.084%).

This was an improvement compared to yesterday, when the US two-year bond yield recorded its biggest three-day plunge since 1987 (as investors fled to safety in the wake of Silicon Valley Bank’s collapse).

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