Big banks, materials lead ASX rally after inflation data
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The news: The Australian sharemarket advanced in afternoon trading, having initially lowered earlier in the session, with banking and gold stocks leading the rally.
The numbers: The financials sector, up 1.84%, was the best performing which boosted the ASX 200 to rise 0.9% by 2:45pm AEDT.
Banking heavyweights National Australia Bank (2.63%), Commonwealth Bank (2.68%), Westpac (2.19%), ANZ (2.03%) and Macquarie Group (2%) were all trading higher.
Materials (1.16%) was the second best performing sector, boosted by a surge in gold stocks. Bellevue Gold (4.5%) was the top performing company across the ASX 200, with Regis Resources (4.2%), Westgold Resources (3.6%) and Genesis Minerals (3.1%) also among index's top 10 performers.
The context: The ASX ended the first four trading sessions of the new year higher and looks poised to extend that run.
The benchmark ASX 200 was tracking down during morning trade and was set to follow declines on Wall Street overnight. However, the index reversed losses later in the session, after the Australian Bureau of Statistics released its monthly inflation data.
The headline CPI figure increased from 2.1% to 2.3%, but economists are split what the new data means for rates. While some believe it will lead the Reserve Bank to keep rates higher for longer, ANZ's economists said the data "raises the probability of a February rate cut".
Higher interest rates can lead to higher profitability in the banking sector, with banks earning a higher yield on every dollar they invest. However, rate cuts can lift activity in the sector and encourage more businesses and consumers to borrow.
