Shares lurched higher in a quiet trading session as the frantic “Trump trades” that shook up financial markets over the past week faded further.
The S&P/ASX 200 index ended the day 0.2 per cent higher at 5338.5, after sliding as much as 0.8 per cent in early trade following losses on Wall Street.
Battered yield-sensitive bond proxies such as Telstra and Transurban, which had been sold off on speculation that ambitious stimulus plans by a Trump administration would lift inflation, were among the winners of the day as global bond markets continued to recover.
The yield on Australia’s benchmark 10-year bond fell further to 2.574 per cent, from the 10-month high of 2.737 per cent it had struck on Tuesday (bond yields and prices move in opposite direction), but traders doubted the bond recovery rally would last much longer.
“The momentum is clearly in favour of rising (bond) yields and a continued sell-off for bond proxies, so this is likely only a short-term reprieve for distressed investors in these stocks,” said Atlantic Pacific Securities advisor Gary Huxtable.
Still, on Thursday bond proxies enjoyed their moment in the spotlight, with Transurban rising 2.5 per cent, Duet Group up 2.3 per cent and Westfield gaining 1.4 per cent.
Telstra provided the biggest tailwind for the benchmark index, rising 2.5 per cent after the telco reaffirmed its earnings guidance and flagged $1 billion in cost cuts over the next four years.
The energy sector was the biggest loser after oil prices dropped, while banks were also sold off following drops in the sector on Wall Street. US banks had been among the biggest winners since the US election on rising yields as well as hopes President-elect Donald Trump will axe regulation.
There was still real uncertainty as to what a Trump administration and its plans meant for bonds, equities, interest rates, said Bell Potter’s director of institutional sales and trading, Richard Coppleson.
“Look plenty are bearish – I’m not. I still see markets a lot higher in six weeks,” Mr Coppleson said, noting that he expects a 5 per cent rally in the ASX before the year ends.
Mr Coppleson predicted the rally would be driven by the heavyweights of the market, which until a few months ago had been laggards.
“Not many have noticed, but the top 20 have been seeing flows” out of other ASX200 stocks and out of small caps, he said, adding that the blue chips had been quietly outperforming since September.