ASX 200 News Today: Market Extends Recovery as Materials Lead Gains Despite Oil Risks

The Australian share market continued its recovery on Wednesday with buyers returning in force. The S&P/ASX 200 Index increased 1.85% and ended at 8,534.3 points. This move was preceded by change in sentiment from prior session. The strength came despite weaker lead from the US on Tuesday, in which the Dow Jones Industrial Average and the Nasdaq Composite were down. The investors look beyond global weakness and focus on improving the domestic momentum.

Broad-Based Buying Drives Market Higher

Buying activity was strong in most sectors with few areas closing in negative territory. Energy stocks were the main losers, with the S&P/ASX 200 Energy Index dropped 2.33%.

On the other hand, the consumer staples also edged lower with S&P/ASX 200 Consumer Staples Index dropping 0.12%. Utilities stocks also followed suit as the S&P/ASX 200 Utilities Index fell slightly by 0.06%. These sectors trailed as investors moved into higher growth and cyclical sectors.

On the upside, gold stocks performed a great rally. The All Ordinaries Gold Index rose 8.16% with demand returning to precious metals. Mining stocks also performed well with the S&P/ASX 200 Materials Index rising 4.41%. The chart below shows that the Materials Index has recovered back above the 21,300 level which has pushed the index within the ascending broadening wedge.

Moreover, industrials, healthcare and consumer discretionary sectors had good gains supported by improving sentiment.

Inflation Trends and Oil Risks Shape Outlook

Australia’s most recent inflation data sent mixed signals to the market. Annual inflation was slightly lower than expected to 3.7% in February. This decrease was mainly due to lower inflation of goods. This is supported by lower transport costs and by a reduction in fuel prices earlier in the month.

The trimmed mean inflation also remained at 3.7%, but the monthly rise of only 0.2% indicated that price pressures may be stabilising.

This provided some support to equities as it increased the hope that inflation could move slowly towards the central bank’s target.

However, new dangers are emerging from the energy market. Oil prices have spiked dramatically in recent weeks with wholesale diesel prices rising by almost 75% in a month.

This sudden increase is likely to cause tradables inflation to rise in March. Increasing fuel costs can contribute to transportation and production costs which can increase inflation again. This is creating uncertainty for monetary policy and could limit the extent to which equities extend their recovery in near term.

Technical Analysis – Recovery Builds Above Key Support

The weekly chart for ASX 200 shows a strong recovery from the lows of 8,260. If the ASX 200 closes above 8,500 this Friday, the rally will likely extend further. The emergence of an ascending broadening wedge pattern indicates strong volatility in the market. A break above 9,000 is required to take the index to higher levels.

The daily chart for ASX 200 also shows a strong recovery above 8,400, which indicates a positive turn from this support region. A daily close above 9,000 will further confirm a strong move to the upside. The RSI indicator is also turning from oversold levels, which indicates positive momentum in ASX 200 in the short term.

Bottom Line

The ASX 200 is showing strong recovery momentum as investors are back in market and buying spreads across key sectors. Improving inflation data is positive for sentiment in short term. But with rising oil prices, some new risks are faced. The market is now between reducing domestic inflation and renewed global cost pressures. This balance will determine the next move in the index.