The S&P/ASX 200 index closed 1.47% higher on Thursday, buoyed by a weaker-than-expected labor market report that diminished the likelihood of an imminent interest rate increase by the Reserve Bank of Australia. The broad-based rally was led by the materials, metals and mining, and A-REIT sectors, which posted substantial gains as investors recalibrated their rate expectations.
Australia's unemployment rate rose to 4.5% in April, according to the Australian Bureau of Statistics, with employment falling by 19,000 jobs and the number of unemployed increasing by 33,000. Sean Crick, head of labour statistics at the ABS, noted that both full-time and part-time employment declined. The data prompted markets to slash the implied probability of a June rate hike to 8%, down from 20% prior to the release, according to Reuters. The Australian dollar weakened and shorter-dated government bond yields fell in response.
Krishna Bhimavarapu, economist at State Street Investment Management, commented that the jump in unemployment signals that the labour market narrative may be shifting faster than anticipated. Westpac economist Ryan Wells said he now strongly backs a pause from the RBA in June, though he cautioned that inflation remains the central bank's primary concern.
Market breadth improved through the afternoon, with Market Index reporting that 166 names, or 83% of the ASX 200, traded up by 2:05 p.m. AEST. Real estate and materials were posting sizeable bounces. By the close, 722 stocks advanced versus 411 that declined, according to Investing.com.
Guzman Y Gomez led the ASX 200 with a 12.81% surge, followed by Virgin Australia (+9.33%) and IGO (+8.00%). On the downside, Stanmore Coal dropped 7.28%, Contact Energy fell 5.49%, and REA Group slipped 3.56%. The S&P/ASX 200 VIX, which tracks options prices, slid 6.23% to 13.12, reflecting reduced market anxiety.
The local rally tracked gains in overseas markets, where a stronger appetite for risk prevailed. U.S. stocks closed higher overnight, with the S&P 500 up 1.08%, the Nasdaq Composite adding 1.54%, and the Dow Jones Industrial Average pushing back above 50,000. Lower oil and bond yields, along with Nvidia's record quarterly sales of $81.6 billion and a $91 billion forecast for next quarter, supported the move. Nvidia CEO Jensen Huang said AI factories are ramping up.
Arafura Rare Earths shares jumped up to 13.6% after the company signed off on its A$1.6 billion Nolans project in the Northern Territory, putting it on track to become Australia's third largest rare earths supplier, behind Lynas Rare Earths and Iluka. Treasurer Jim Chalmers said rare earths offer a golden opportunity for the country as Western nations seek to reduce dependence on China for these minerals.
Despite the strong session, some analysts warned that the rally may prove fragile. Oil prices, U.S. yields, and the Iran conflict remain overhangs; another spike in energy prices could push inflation up and revive rate hike expectations. Joseph Capurso, head of FX at Commonwealth Bank of Australia, noted that safe-haven flows had faded on hopes for peace with Iran, but cautioned that military escalation could still be used as leverage in negotiations. Thursday's move has the feel of a relief rally rather than the start of a clear cycle shift.
