Australian stock markets ended the week on a positive note on Friday, December 19, drawing strength from a rally on Wall Street. The gains were primarily fueled by a softer-than-expected U.S. inflation report, which reignited investor hopes for interest rate cuts by the Federal Reserve in the coming year.
Market Performance and Key Drivers
The benchmark S&P/ASX 200 index advanced by 0.6% to close at 8,653.30 points. Despite the daily uptick, the index is on track to record its most significant weekly decline in four weeks if the current trend holds. The positive sentiment stemmed from data showing U.S. annual consumer inflation for November came in below forecasts. This development has increased market bets that the U.S. central bank might ease monetary policy sooner, which typically lowers global bond yields and improves financial conditions worldwide, including in Australia. Analysts noted that the moderation in the U.S. inflation print might be partially attributed to the recent 43-day federal government shutdown.
Sectoral Moves: Winners and Losers
The financial sector was a major contributor to the day's gains, rising by 1%. The country's 'Big Four' banks saw increases ranging from 0.6% to 1.3%. Real estate stocks also performed strongly, jumping 1% to hit their highest level since December 4 and setting up for a second straight week of gains. Key players in this space, data centre landlords Goodman Group and NEXTDC, climbed 1.1% and 1.2%, respectively.
However, the rally was not broad-based. The mining sector acted as a drag, falling 0.4% and ending a three-week winning streak. Notably, mining giants like Rio Tinto, BHP, and Fortescue managed to post gains between 0.4% and 1%. Other sectors under pressure included gold-linked stocks, which sank 1%, and energy stocks, which lost 0.5%. The energy sector is poised for its worst weekly performance since early April, down 6.3%. Energy producer Santos dipped 0.7% following the announcement of Lachlan Harris as its new chief financial officer.
Contrasting Outlook: US Hope vs. Australian Reality
While global markets cheer the prospect of U.S. rate cuts, the domestic picture in Australia remains starkly different. Expectations for rate cuts by the Reserve Bank of Australia (RBA) are fading due to persistent sticky inflation and the central bank's hawkish stance. This combination is likely to keep monetary policy firmly on hold. Money markets are currently indicating only a 25% probability that the RBA will raise the cash rate to 3.85% at its February meeting.
In a bright spot, Australian technology stocks mirrored their U.S. counterparts' overnight surge, soaring as much as 2.6% in their best trading session since November 27. Across the Tasman Sea, New Zealand's benchmark S&P/NZX 50 index rose 0.4% to 13,313.46 points.
