ASX Hits Three-Month High Amid Trade Talk Hopes and Strong Sector Gains

Key Highlights:

• ASX 200 climbs 0.56% to 8,461.3; All Ords at 8,685.9
• Financials, Energy, and Real Estate lead the charge
• ERA, DroneShield, and Pepper Money top gainers
• IDP Education plunges 46% after shock update

The Australian sharemarket surged to a three-month high on Monday, with the S&P/ASX 200 advancing 0.56% to 8,461.3 by mid-afternoon, driven by renewed optimism over potential US-China trade talks. The rally saw eight out of eleven sectors post gains, marking a positive shift in investor sentiment as global uncertainty looms.

Financials (+1.01%) took centre stage, bolstered by a rebound in banking stocks. The ASX 200 Banks Index (XBK) added 1.03%, as investors digested fresh comments from the Reserve Bank of Australia (RBA) on global economic risks and the potential for further policy easing. RBA Assistant Governor Sarah Hunter, speaking in Brisbane, underscored the ripple effects of global trade realignments, hinting at caution in household and business decisions.

Investor sentiment improved as reports suggested the US and China may soon resume trade talks, calming fears of escalating tariffs. However, the optimism was tempered by fresh data from China, with the Caixin Manufacturing PMI falling to 48.3 in May—marking the first contraction since September 2024 and the lowest reading in 32 months. This weighed on heavyweight miners, with BHP (ASX: BHP) and Rio Tinto (ASX: RIO) both dipping after early gains, down 0.03% and 0.8% respectively.

In a sector breakdown, nine of the 11 ASX industry groups closed higher. Financials surged 1.01% as investors rotated into bank stocks, while energy gained 0.88% amid rising oil prices. Real estate and industrials also saw steady gains.

Perenti (ASX: PRN) shares advanced 4.3% to $1.643 after Citi raised its target price by 19% to $1.90, citing a “clear near-to-medium term top-line outlook,” a robust contract pipeline, and potential margin expansion from project ramp-ups. Citi expects Perenti to generate $166 million in free cash flow for FY25, highlighting strong performance in Contract Mining and rising rig utilisation.

Meanwhile, the RBA released minutes from its June policy meeting, underscoring a cautious but optimistic tone. The board lowered the cash rate by 25 basis points to 3.85%, citing progress in inflation control and emerging risks from global trade volatility. While a larger 50-point cut was debated, the RBA opted for a measured approach, acknowledging a tight labour market, stable wages growth, and minimal domestic impact—so far—from US-China tariff tensions.

On the macro front, Australia’s current account deficit narrowed to $14.7 billion, but net exports subtracted 0.1 percentage points from GDP in Q1. Analysts now expect subdued growth figures for the quarter, with forecasts trimmed to 0.4%.

Commodities were broadly stronger, with Brent crude up 3.66% to $65.08 and gold rising 2.79% to $3,380.80 per ounce, while the ASX volatility index (VIX) hovered at a low 10.9, signalling confidence in market stability.

Energy stocks (+0.88%) also powered ahead, buoyed by a rebound in crude prices, Brent Crude rose 3.66% to US$65.08 a barrel, while WTI added 3.70%. Real Estate (+0.84%) and Industrials (+0.62%) rounded out the outperformers, helping offset minor drags in Consumer Discretionary (-0.32%) and Health Care (-0.37%).

Top gainers on the day included Energy Resources of Australia (ASX: ERA), rocketing 25% despite low volumes, and DroneShield (ASX: DRO), which climbed 8.59% on fresh contract wins. Pepper Money (ASX: PPM) rose 7.86%, reflecting continued appetite for alternative financial stocks.

On the flip side, IDP Education (ASX: IEL) plummeted 46.05%, wiping billions from its market cap after an unexpected regulatory update rattled investors. Dateline Resources (ASX: DTR) and Findi Ltd (ASX: FND) also tumbled, down 20.69% and 9.73% respectively.

Global cues added fuel to the rally. US markets closed higher last week—S&P 500 rose 0.41%, while the Nasdaq added 0.67%. Commodity markets remained robust, with gold up 2.79% at US$3,380.80 an ounce and silver soaring 5.76% to US$34.93.

Looking ahead, the local market is eyeing tomorrow’s Q1 GDP release, with expectations for subdued growth amid mixed economic signals. Volatility, as measured by the ASX VIX, remains low at 10.9, suggesting a market poised for consolidation rather than turbulence in the short term.

As investors weigh the balance between trade optimism and economic caution, today’s gains hint at a cautious but steady march higher—one that could extend should global talks bear fruit.