The ASX has hit a two-week high.
The S&P/ASX200 gained 98.20 points or 1.27% to 7,831.90 crossing above its 20-day moving average. Over the last five days, the index has gained 0.69% and is currently 0.99% off of its 52-week high.
Top-performing stocks in this index were Collins Food Ltd and James Hardie Industries PLC, up 7.19% and 4.97% respectively.
Looking at the sectors, only Information technology was in the red losing 0.03%. The best-performed sectors were Energy up 2.32%, followed by Real Estate at 1.75% higher and Materials, which gained 1.77%.
Notably, Consumer Discretionary was 1.02% higher.
Sector upgraded
UBS upgraded the Australian consumer discretionary sector to Overweight based on its June quarter Evidence Lab survey of around 1,000 adults conducted in late May and early June.
The survey results indicated a positive trend in aggregate spending intentions for the next 12 months, reaching the highest point since at least 2019. Notable improvements were seen across several industries, including food, eating out, international travel and entertainment, which were previously weak.
According to UBS Australia equity strategist Richard Schellbach, middle-income households earning $48,000 to $120,000 per-year showed the strongest spending intentions. Income expectations also rebounded, particularly among middle-income households.
The increase in spending intentions is a potential concern for the Reserve Bank of Australia (RBA) as it battles inflation, with significant tax cuts worth $23 billion, nearly 1% of GDP, expected to be spent by consumers once implemented next month.
Households reported a positive financial outlook, supported by a resilient labour market, higher job security and rising asset prices, though concerns about rising interest rates persisted. Expectations for interest rates over the next year were notably higher, reflecting the RBA’s recent hawkish stance and consideration of rate hikes.
Despite other consumer sentiment measures remaining weak over the past two years, the UBS Evidence Lab Australian consumer survey consistently indicated the capacity of Australian households to continue spending.
Schellbach emphasised the survey's accuracy in predicting this cycle, highlighting the divergence of views among economists and stock analysts regarding the economy and consumer behaviour.
Negative consumer sentiment
Westpac reports that consumer sentiment experienced a slight rebound last month but remains "deeply pessimistic." The Westpac–Melbourne Institute Consumer Sentiment Index increased by 1.7%, reaching 83.6 in June, up from 82.2 in May.
This modest improvement is attributed to less negative assessments of finances and buyer sentiment, although concerns about inflation, interest rates and economic growth continue to heavily impact sentiment.
Half of the consumers surveyed expect mortgage rates to rise over the next year and job confidence is being undermined by economic uncertainties.
Westpac senior economist Matthew Hassan notes that despite the rise in sentiment, it is still below its March level and remains deeply pessimistic. He highlights that fiscal support measures are being overshadowed by increased worries about inflation and interest rates, as reflected in consumer reactions to recent news.
"The survey detail suggests positives from fiscal support measures are being negated by increased concerns about inflation and the outlook for interest rates," Hassan said.
While the Commonwealth budget and cost-of-living measures were seen less unfavourably, inflation news was viewed more negatively compared to March, similar to sentiment levels in December when the RBA raised the cash rate.
Hassan also pointed out that the overall news backdrop, including that of inflation, is still broadly unfavourable, with no "net favourable" assessments in any of the 15 detailed news topics covered in over two and a half years, marking the longest period of negative news sentiment since the survey's inception in the mid-1970s.
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