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Lithium miners advanced with hopes the budget will include measures to boost the sector amid the Albanese government’s push to make Australia a leader in critical minerals. Piedmont Lithium jumped 12.8 per cent and Chalice Mining gained 6.6 per cent.

The laggards

Real estate investment trusts were among the worst performers on Tuesday as Westfield shopping centre Scentre Group and developer Mirvac both dropped about 1 per cent.

Industrial stocks also declined, led lower by Seven Group Holdings (down 3.1 per cent), Transurban (down 1.8 per cent) and Brambles (down 1.5 per cent).

Shares of mining giant BHP, the largest stock on the index, dropped 0.2 per cent after its takeover target – UK miner Anglo American – rejected a sweetened $64 billion takeover bid, escalating the merger battle.

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The low-down

Treasurer Jim Chalmers is expected to forecast a surplus of $9.3 billion in his budget, which will promise nationwide cost-of-living relief without fuelling inflation while trying to reshape the economy with the Albanese government’s “Future Made in Australia” industry package.

With the market’s focus on the outlook for interest rates, a key aspect for investors will be the budget’s impact on inflation.

Tribeca’s Liu said it would probably add to inflationary pressure in the economy by stimulating activity, such as through tax incentives for business.

Even though she did not believe there would be major “handouts” to assist with the increased cost of living, “we still think the budget is going to be reasonably inflationary,” she said.

The Reserve Bank of Australia last week held official interest rates at 4.35 per cent but forecast inflation was likely to rise from 3.6 per cent to 3.8 per cent through the second half of this year. It is not expecting to have inflation back within its target band until the second half of next year. Its forecasts, however, did not consider any policies that will be announced in the budget.

The treasurer will reveal that inflation could fall to the target band by the end of this year, and be down to 2.75 per cent by the middle of 2025 as the government’s various cost-of-living measures take the edge off expected price increases.

Falling inflation would give the Reserve Bank room to cut interest rates, which could stimulate consumption and boost share prices. Sticky inflation would have the opposite effect.

The local market’s overall lacklustre session comes after a mixed close on Wall Street, where the S&P 500 edged down by less than 0.1 per cent after flipping between small gains and losses through the session, the Dow Jones slipped 0.2 per cent and the Nasdaq Composite rose 0.3 per cent.

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In US trading overnight, meme stock GameStop staged a surprising comeback, soaring 74.4 per cent in a swing reminiscent of its maniacal moves from three years ago when hordes of smaller-pocketed investors sent the stock’s price way above what many professional investors considered rational.

One believer, in particular, nicknamed Roaring Kitty, helped lead that charge and a post on a social media account linked to him stirred more adrenaline. Within the first 70 minutes of trading on Monday, trading of GameStop’s stock was temporarily halted nine times because its price was swinging so sharply.

US shares have broadly rallied this month following a rough April on revived hopes that inflation may ease enough to convince the Federal Reserve to cut its main interest rate later this year. A key test for those hopes will arrive on Wednesday when the US government offers the latest monthly update on inflation that households are feeling across the country.

Critics say the Fed may have to delay rate cuts for longer than traders expect because of continued pressure on inflation. The goal for inflation that “the Fed seeks is a pipe dream” according to Barry Bannister, a managing director at Stifel.

Meanwhile, a stream of stronger-than-expected reports on US corporate profits has helped support the US sharemarket.

Companies in the S&P 500 are on track to report growth of 5.4 per cent for their earnings per share in the first three months of the year versus a year earlier, according to FactSet. That would be the best growth in nearly two years.

In the bond market, US Treasury yields eased a bit. The yield on the 10-year Treasury slipped to 4.48 per cent from 4.50 per cent late Friday.

Tweet of the day

Quote of the day

“BHP put forward a revised proposal to the Anglo American board that we strongly believe would be a win-win for BHP and Anglo American shareholders. We are disappointed that this second proposal has been rejected,” the mining giant’s chief executive Mike Henry said as the London-headquartered miner knocked back BHP’s sweetened takeover bid.

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Qantas will stop its direct flights to mainland China following a lack of demand, as the Chinese tourists who previously shored up Australia’s travel industry continue to stay away.

The airline confirmed on Tuesday it will suspend all flights from Sydney to Shanghai – the only route to Australia’s biggest trade partner relaunched after the COVID-19 pandemic grounded global aviation – at the end of July, citing a lack of demand between Australia and China.

with AP

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