ASX Surges More Than 2% as Wall Street Rally Lifts Sentiment, but Australia's Inflation Challenge Remains

Australian equities: what moved the ASX 200?

Australian shares rallied strongly on Thursday, 5 November, as improving global sentiment encouraged renewed buying across the domestic market. The S&P/ASX 200 recovered from Wednesday's decline, with delayed market data placing the benchmark around 9,040 points, up approximately 2.3% from its previous close of 8,834.50.

The advance followed a powerful overnight rally on Wall Street after the US midterm elections produced a major political shift, with Democrats securing control of both chambers of Congress. The prospect of greater political constraints on the Trump administration helped reduce uncertainty and supported demand for equities.

The strength of the Australian recovery is particularly notable given the Reserve Bank's latest interest rate increase. However, the session suggests global sentiment and expectations surrounding US policy are currently exerting considerable influence over local market direction.

The Australian dollar, bonds and the RBA

The Australian dollar remained supported against the US dollar, benefiting from improved risk appetite and Australia's relatively high interest rates. Currency movements remain important for resource producers, particularly companies earning substantial US dollar revenue while reporting expenses in Australian dollars.

Australian two-year government bond yields finished around 4.84%, while the 10-year yield remained close to 5.02%. The relatively stable longer-term yield suggests bond markets are still weighing persistent inflation against the prospect of slower economic growth.

The RBA raised the official cash rate by 25 basis points to 4.85% on 3 November. The decision followed September inflation figures showing annual headline inflation of 4.3%, compared with 4.0% in August. Trimmed mean inflation also increased to 3.6%.

The central bank has warned that inflation could remain above its 2–3% target range for longer than previously anticipated. We believe this remains one of the biggest challenges for domestic equities, particularly retailers, property businesses and companies dependent on household spending.

Global markets: China, Asia and Europe

Asian markets were broadly positive on Thursday, although technology-heavy markets experienced considerable divergence. Hong Kong and mainland Chinese shares advanced, benefiting from the improved international mood.

South Korea's Kospi fell approximately 3.5%, with Samsung Electronics and SK Hynix among the weakest performers. Japan's Nikkei also declined around 0.5%, while Taiwan's Taiex lost approximately 1.6%.

The weakness highlights growing concerns surrounding technology valuations and the sustainability of artificial intelligence infrastructure spending. While AI remains a powerful long-term investment theme, markets are becoming increasingly selective about which businesses can translate capital expenditure into sustainable earnings.

For Australia, China's industrial demand remains particularly important. A stronger manufacturing recovery would support iron ore and copper producers, although the latest regional market movements alone do not establish that a meaningful improvement in Chinese economic activity is under way.

European markets had only recently begun trading as the Australian session ended, making completed European closing figures unavailable.

Wall Street: US stocks and the Federal Reserve

Wall Street delivered a powerful rally on Wednesday, 4 November, following the US midterm elections.

The Dow Jones Industrial Average surged 3.03% to 53,356.12, its strongest daily percentage performance since April 2025. The S&P 500 advanced 1.58% to 7,688.62, while the Nasdaq Composite gained 1.44% to 25,736.51. The Russell 2000 climbed 1.58% to 2,856.95.

Democrats secured control of both the Senate and House of Representatives, ending Republican control of Congress. Markets responded positively to the prospect of greater political checks on the administration, particularly around trade, fiscal policy and the conflict involving Iran.

Technology shares delivered a mixed performance, with semiconductor and data centre-related businesses facing concerns about potential regulatory scrutiny and the scale of AI infrastructure expenditure.

US economic data also offered mixed signals. Private payrolls increased by 86,000 in October, exceeding expectations of 67,000, while the ISM services index eased to 54.5 from 54.9.

The Federal Reserve's policy rate remains at 3.75–4.00%. Falling oil prices and Treasury yields have provided some relief, although the inflation outlook remains uncertain.

Commodities: gold, oil and industrial metals

Oil experienced a significant correction, with Brent crude falling approximately 8.7% on Wednesday to around US$94 a barrel. Expectations of potential diplomatic progress involving Iran contributed to the decline, reducing some of the geopolitical premium previously embedded in energy prices.

Gold strengthened, trading around US$4,137 an ounce on Thursday, supported by a weaker US dollar and renewed demand for defensive assets.

Copper traded around US$6.39 a pound, while iron ore remained close to US$92 a tonne. Lithium carbonate was approximately CNY91,700 a tonne.

For Australian producers, stronger precious and industrial metals offer a supportive backdrop. However, lower oil prices could weigh on energy companies if the decline becomes sustained.

What to watch next

The immediate question is whether Wall Street can maintain its momentum and whether the rally can broaden beyond the largest US companies. Continued weakness in semiconductor shares would suggest that concerns surrounding AI valuations have not disappeared.

We will also be watching Chinese industrial demand, movements in iron ore and copper, and the Australian bond market following the RBA's latest decision.

Our assessment is cautiously constructive. The combination of lower oil prices, improving global sentiment and reduced political uncertainty provides a more favourable environment for equities. However, Australia's restrictive monetary conditions remain a significant obstacle. The next phase of the market recovery will depend less on political optimism and more on whether companies can demonstrate sustainable earnings growth despite higher financing costs.