Australian shares flat as financials offset mining gains

Australian shares were largely unchanged on Friday, with interest rate-sensitive sectors offsetting gains in gold miners as investors ramped up bets for rate hikes.

The S&P/ASX 200 index was flat at 8,848.10, as of 2343 GMT, after rising 0.8% on Thursday.

The gauge has declined about 0.5% so far this week and is set for its biggest fall in six weeks if current losses hold. Data showed on Thursday that the Australian unemployment rate fell unexpectedly in December to a seven-month low.

This, combined with sticky inflation and increasingly hawkish signals from the central bank, has spurred fresh bets for rate hikes.

Swaps now indicate a 55.7% chance of a hike in cash rate on February 3, compared with 26.5% before the data, along with an over 80% chance in May.

The outcome now hinges on the Reserve bank of Australia’s preferred gauge of inflation, the quarterly consumer price index, which is due next week. Financials fell 0.8% after surging 1.9% on Thursday.

The sub-index is set for a more than 2% fall this week.

While higher interest rates may bolster profitability for banks, they also risk shrinking the mortgage market by discouraging new borrowing.

The “big four” banks fell between 0.4% and 1.4% on Friday. Property stocks shed 1% and consumer discretionary fell 0.4%. Energy stocks declined 0.6%, tracker lower oil prices.

Miners rose 1.2%, driven largely by gold stocks, which jumped 4.5% after bullion prices hit a record high overnight on the back of a softer greenback, expectations of Federal Reserve rate cuts, and a persistently shaky geopolitical terrain.

Precious metal miners Ramelius Resources and Evolution Mining climbed 6.1% each.

However, iron ore miners Rio Tinto and Fortescue fell 0.9% and 1.1%, respectively, capping gains in the sub-index. Capstone Copper’s Australian shares fell 3.5%, after the miner flagged labour disruption at its Mantoverde operation.

In New Zealand, the benchmark S&P/NZX 50 index fell 0.5% to 13,491.79.