Australian Stocks, ASX 200 Soar on Improving Risk Sentiment

Cooler-than-expected inflation data in the U.S. has helped Australian equities to hit the highest level since June. The benchmark ASX 200 rose by 2.8% to 7,158 points on Friday. Overall, 173 of 200 stocks in the ASX 200 index recorded gains, while some mining stocks, including Whitehaven and New Hope (OTC:NHPEF), trailed the broader market.

Global equities surged on Thursday after the consumer price index (CPI) in the United States missed the average analyst estimate to fuel a rally in stocks and bonds while sending the U.S. dollar sharply lower. Investors are hoping that the falling inflation will prompt the Fed to slow down the pace of rate hikes and therefore increase the chances of a soft landing.

The latest Consumer Price Index (CPI) print is the first reading in eight months that showed inflation eased below 8%.

"This is a big deal," said Banker Avenue Asset Management's King Lip. "We have been calling the peak of inflation for the last couple of months and just have been incredibly frustrated that it hasn't shown up in the data. For the first time, it has actually shown up in the data."

Mary Daly, president of the San Francisco Federal Reserve, welcomed the new CPI reading but reiterated the central bank's aggressive stance on fighting inflation, which remains a far cry from the Fed's desired 2%.

Improving Risk Sentiment Offsets China COVID Worries

Within the ASX 200, tech stocks led the surge higher to reflect a slump in bond yields. Overall, risk assets gained despite the ongoing drama in the cryptocurrency market surrounding the collapse of the U.S.-based crypto exchange FTX. Real estate stocks followed Tech higher, another sector that had been a victim of surging bond yields.

In the Utility sector, known for its defensive positioning, shares of Origin Energy closed the week over 30% higher after the company received a huge, non-binding takeover offer a day earlier. The proposal, based on a 55% premium, assumes that Brookfield would take over the energy business while MidOcean would acquire the integrated gas business.

Some mining stocks jumped amid a surge in iron ore prices after China emphasized it must cushion the pandemic's impact on the economy. On Friday, China moved to shorten quarantines by two days for close contacts and visitors while also ending the "circuit breaker" penalty for airlines.

Asian shares rallied in response to loosened curbs as the economy continues to struggle amid ongoing lockdowns. Some of the world's largest companies, like Apple (NASDAQ:AAPL), are working to diversify their supply chain and their dependency on China due to concerns about the country's controversial zero-COVID policy.

The likes of BHP Group (NYSE:BHP), Rio Tinto (NYSE:RIO), and Fortescue Metals Group (OTC:FSUGY) were among the biggest mining winners, soaring between 3.8% and 5.8%.

"Commodities gained as a risk-on tone was sparked by weaker than expected inflation data in the U.S. Sentiment was also boosted after Chinese leaders advocated a more targeted pandemic approach," said ANZ senior commodity strategist Daniel Hynes.

CBA analyst Vivek Dhar noted a certain level of caution in commodity prices in the face of positive sentiment in the broader market due to ongoing economic headwinds in China.

"The increase in COVID-19 cases in China and the potential for a severe lockdown in the southern city of Guangzhou pose adverse risks to China's commodity demand," Dhar said.

On an individual basis, the best performers include telecom company Megaport (ASX:MP1) (13.6%), Pinnacle Investment Management (ASX:PNI) (12.5%), Netwealth (ASX:NWL) (11.7%), fintech company Block (11.5%), and Pro Medicus Ltd (ASX:PME) (11.5%), among others.

Banks were also in the green, with the "Big Four" climbing between 1.1% and 2%. The share jump comes after Westpac and National Australia Bank (OTC:NABZY) recently eased certain home lending standards.

Yet, in addition to stocks, Australia's forex trading activity has also seen notable activity. The Australian dollar jumped drastically by over 2 U.S. cents to more than 66 U.S. cents.

Summary

Stock trading has become increasingly popular in Australia as a growing number of Australian stock apps facilitate access to both U.S. and Australian equities. Such Australian equities soared on Friday to reflect improving risk sentiment on hopes the Fed will commit to a monetary policy pivot. U.S. inflation figures for October missed the consensus, fueling a rally in stocks and bonds. As a result, ASX 200 hit the 5-month high, with the rally being driven by the beaten-down Tech and Real Estate sectors.