ASX 200 Shrugs Off Hot US Inflation Scare, Edges Toward Record High as Tech Rally Offsets Miner Sell-Off

SYDNEY — Australian shares recovered from early losses to trade slightly higher on Wednesday afternoon, as gains in technology and smaller companies offset a sell-off in mining stocks after hotter-than-expected U.S. inflation data hit Wall Street and metal prices.

The S&P/ASX 200 index was up 10.8 points, or 0.12%, at 9,139.8 at 2:57 p.m. AEDT. It added to Tuesday's 1.1% rally, which took the benchmark to its highest close since late August.

The index was within about 1.5% of its Aug. 6 record high and has risen just over 6% from its Oct. 2 low, according to Market Index.

The gain looked unlikely at the open. SPI futures had pointed to a fall of about 0.5% after Wall Street slipped overnight, and the ASX 200 was down 0.3% at 9,103 points shortly after 10 a.m. as investors sold mining stocks. By midday the index had pared most of its losses, and it moved into positive territory in the afternoon.

US inflation keeps Fed hike in play

The early weakness came from the United States. The consumer price index rose 0.4% in October, above economists' forecasts of 0.3% and the third straight month at 0.4% or higher. Core inflation, which excludes food and energy, rose 0.3% against expectations of 0.2%.

The data strengthened bets that the Federal Reserve will raise interest rates next month. Markets now fully price in a December hike, and remarks from two voting Fed members raised the prospect of a larger, half-point move. The U.S. 10-year Treasury yield rose to about 5%, and the U.S. dollar gained about 0.7% against a basket of currencies.

Wall Street fell overnight. The S&P 500 dropped 0.4%, the Dow Jones Industrial Average lost 0.3%, and the Nasdaq Composite fell 0.7%. Nvidia slid more than 5%, extending a two-day drop of about 10% amid uncertainty over Chief Executive Jensen Huang's future after the chipmaker's board opened an independent investigation.

Miners drag, then recover

Mining stocks led the early losses. The materials sector fell as much as 2.1% after a sharp overnight sell-off in gold and copper, as a stronger dollar and higher yields hurt commodities.

Gold fell about 2.7% to around US$4,026 an ounce after the inflation data, putting pressure on producers including Northern Star Resources. BHP, Rio Tinto and Fortescue also traded lower as copper prices and iron ore futures gave back recent gains. Iron ore slipped 0.4% to US$92.40 a ton.

Both gold and copper steadied in Asian trading, and the materials sector recovered into slightly positive territory by early afternoon.

Energy stocks remained under pressure. Brent crude fell to about US$92 a barrel, a two-month low, after U.S. officials played down the need for more military action against Iran.

Tech and small caps lead

Technology stocks led the recovery, rising about 0.7%, with location-sharing app maker Life360 among the gainers. Small caps also outperformed, rising about 0.6%, while large companies lagged. The ASX 20 index of the market's biggest stocks was roughly flat, and banks were down about 0.3%.

Among individual stocks, IDP Education jumped about 19% to A$2.64 in late-morning trade, one of the biggest gains on the market.

CBA profit rises, but warns on households

Commonwealth Bank of Australia, the country's largest listed company, reported unaudited first-quarter cash net profit of about A$2.8 billion. That was up 8% from a year earlier and flat against the quarterly average of the previous half.

Operating income rose 3% on growth in lending and deposits, while expenses also rose 3% on wage and technology costs. Home lending grew 6.6% over the quarter and business lending rose 13.6%. Home loan applications were down 16% from a year earlier, and home loan arrears rose 7 basis points to 0.8%.

"Higher inflation and interest rates continue to place uneven pressure on household incomes and business activity," Chief Executive Matt Comyn said.

CBA shares were little changed. J.P. Morgan analysts warned the update could lead to broker downgrades given the stock's recent run. "This is the context of CBA's share price which is already up 13.2% over the past month vs the ASX200 at 4.7%," they wrote.

ANZ shares rose ahead of going ex-dividend on Thursday. Wednesday is the last day for investors to buy the stock and qualify for its upcoming payout.

Macquarie penalty, NextDC denial

Macquarie Group admitted breaching the Corporations Act over its "Welcome Rate" savings promotion, with a proposed penalty of A$14 million. The bank has already paid A$8.8 million in compensation to nearly 40,000 customers.

"We should have better explained on our website how the Welcome Rate would be applied," Macquarie's Ben Perham said.

Alan Kirkland, a commissioner at the Australian Securities and Investments Commission, said "Macquarie's systems and controls were not rigorous enough to identify the risk."

Data center operator NextDC distanced itself from the Nvidia controversy after footage surfaced of its chief executive next to Alice Huang, the businesswoman linked to Singapore-based Megaspeed. "NEXTDC has no links whatsoever with Megaspeed or anyone at that company," the company said.

Currency and regional markets

The Australian dollar was flat at about 68.65 U.S. cents after falling 0.9% overnight as the greenback strengthened. Australia's 10-year government bond yield traded at about 5.05%.

Elsewhere in Asia, Japan's Nikkei and South Korea's Kospi rose, while Hong Kong's Hang Seng fell about 0.8%.

Outlook

Investors will watch overnight moves in U.S. bond yields and commodity prices, as well as more comments from Fed officials before the December policy meeting. Locally, the market's next test is whether the ASX 200 can return to its August record, with higher global interest rates the main risk to the recent rally.