The Australian stock market finished extraordinarily close to a record peak, buoyed by a strong momentum from Wall Street and local GDP figures that fell short of expectations, triggering speculation of additional rate reductions by the Reserve Bank. The S&P/ASX200 rose by 75.10 points, a growth of 0.9%, to settle at 8451.80 on Wednesday. This figure was just a mere 14 points shy of its mid-February record closing rate. Excluding communication services and consumer staples, all industrial segments enjoyed a day in green, spearheaded by energy and consumer discretionary stocks, miners, and banking institutions.
Shares of the Commonwealth Bank surpassed the $180 mark, pushing the bank’s market cap over the $300 billion milestone. The Australian dollar demonstrated stability, pegged at US64.62¢ as of late evening. The release of the GDP figures ignited the performance of major banks, amplifying their gains amidst hopes of further RBA easing and subsequent investor confidence surge.
Commonwealth Bank, the country’s top lender, saw its shares ascend by 1.4% to $181.10, marking another record and pushing its market cap to $303 billion. The bank’s performance this year has been spectacular, with its market cap on the ASX growing by an impressive 17.9%. Other banking giants didn’t lag far behind – National Australia Bank saw a gain of 1.1% while ANZ marked an increase of 1%.
The prospects of additional interest rate cuts fueled the gains of consumer discretionary firms, positing that a reduction in rates would leave consumers with higher spending power. Bunnings and Officeworks owner Wesfarmers experienced a surge of 0.6%, electronics retailer JB Hi-Fi saw a raise of 2.1%, and furniture giant Harvey Norman followed suit with a 3% hike.
Dominating players in the mining industry also strengthened their position, with iron ore behemoths BHP and Fortescue Metals seeing an uptick of 1% and 1.6% respectively. Further, energy stocks echoed the upward trend in response to a more than 1% overnight rise in oil prices. Notably, Woodside Energy stock jumped by 2.9%, and Santos recorded a rise of 0.9%.
However, it was a rather rocky day for Mayne Pharma, which saw a slump of 5.3% in shares. The dip came after Cosette Pharmaceuticals, its US suitor, announced its intention to terminate their takeover deal. Additionally, Qantas Airways experienced a dip of 1.6% owing to the news of its prime competitor, Virgin Australia, preparing to rival them not just in airspace but also in stock trading.
Following the tumult surrounding Trump in preceding weeks, investor attention was steered towards local events. A government report revealed Australia’s economy starting 2025 on a less than expected note. Reduced public spending coupled with weaker exports contributed to the slump in growth. Consequently, the Gross Domestic Product increased by a meager 0.2% for the first quarter, less than the anticipated 0.4%.
The year-on-year expansion stood at 1.3%, falling short of the forecasted growth of 1.5%. The Reserve Bank forecasts economic growth to accelerate to 2.1% by the year’s end, primarily driven by consumer spending as cash becomes available owing to reduced borrowing costs. In response to an uncertain global environment, the bank trimmed the cash rate to 3.85% last month, showcasing its readiness to ‘respond decisively’ should economic conditions worsen.
To meet its forecast, the Reserve Bank now requires a quarterly growth rate of 0.7% in the ongoing three-month phase, a figure that has remained elusive since mid-2022. Decreasing interest rates can make borrowing more affordable for companies and individuals, providing relief from mortgage stress amidst the cost-of-living crisis. This turn of events signals positive tidings for corporate profits and share prices.
Already poised for a positive start owing to a robust trading session on Wall Street, Wednesday’s trading session further bolstered the market mood. The wait for further news on President Donald Trump’s tariffs have brought US stocks closer to their record. The S&P 500 registered a rise of 0.6%, bouncing back after recording marginal gains in May from nearly falling 20% below two months ago.
It now stands just 2.8% away from its unprecedented high earlier this year. The Dow Jones followed suit, adding 214 points or growing 0.5%, and the Nasdaq Composite also made a gain of 0.8%. Employers in the US, according to a Tuesday report, have advertised more job vacancies at the end of April than expected, suggesting the continued resilience of the US economy.
Optimism remains prevalent in the trade sector as expectations are still high around Trump reaching agreements on tariffs with other nations, particularly China. These hopeful signs hint at potential positive momentum in global stock markets and the global economy.
Despite occasional turbulence, the Australian stock market’s strong performance reveals the resilience of its domestic economy, reflecting economic adjustments and strategic movements of major banks and large companies. Where future GDP growth and the potential for further interest rate cuts might lead, provides an intriguing harbinger for investors and economies worldwide.