Australian shares surged 1 per cent to a record high of 7969 points by midday, driven by data showing the US entered deflation in June, increasing expectations for imminent rate cuts by the US Federal Reserve. Year-on-year US inflation was at 3 per cent, but prices dropped 0.1 per cent from May to June. This news led to a decline in US bond yields and a rotation from mega-cap tech stocks to smaller caps, which benefit more from lower rates.

NAB reported, “Post CPI, US money markets priced in a September quarter-point Fed cut with 100 per cent confidence and a small chance (~10 per cent) of a July move. Markets now anticipate 60bps of cuts by year-end.”

In Australia, the tech sector dipped 1.2 per cent, while real estate rose 2.3 per cent. The Small Ords Index gained 1.3 per cent. The Australian dollar reached its highest since January, buying US67.6¢.

Commonwealth Bank shares hit a record high of $131.60, surpassing BHP’s market cap, which fell 0.6 per cent. Rio Tinto rose 0.6 per cent amid acquisition speculation. NAB shares reached $36.89, the highest since the GFC, while Rex shares remained flat due to a boardroom split.