Buoyant market builds on earlier gains

THE sharemarket finished higher yesterday, building on last week's record gains, after the Australian Labor Party voted on the weekend to end the ban on uranium exports to India, removing a hurdle to growth for producers such as BHP Billiton and Paladin Energy.

By InvestSMART · 6 Dec 2011

By InvestSMART ·
6 Dec 2011

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Investors also welcomed news that Italy's cabinet, led by new Prime Minister Mario Monti, had agreed to pursue ?30 billion worth of austerity and growth measures in an attempt to shore up the country's finances ahead of Thursday's summit of European leaders.

The benchmark S&P/ASX 200 Index rose 33.3 points, or 0.78 per cent, to 4321.3, taking the index above 4300 points for the fifth time in four months. In the past six days, the index has rallied 8.7 per cent.

Trade between Australia and India hit $18.4 billion in 2010. The Labor Party's decision to lift the ban on sales of uranium to the non-signatory to the global nuclear non-proliferation treaty will pave the way for the Gillard government to negotiate a nuclear-safeguards accord and pursue closer diplomatic ties with the country.

Materials and energy stocks led the charge on the local bourse as investors reacted positively to the news, with junior uranium miners outperforming their sector.

Energy Resources of Australia closed up 14?, up 9.8 per cent, to $1.57. Paladin Energy grew 4?, up 2.4 per cent, to $1.71.

BHP Billiton rose 61?, up 1.7 per cent, to $37.26, consolidating strong moves on Friday night in the London price of BHP shares.

Rio Tinto Group, the world's third-biggest miner, grew 68?, up 1 per cent, to $67 a share.

"There's some positive momentum, but we need some good news to keep it going," Cameron Peacock, a strategist at IG Markets, said.

The news failed to excite the Australian dollar as traders held their breath before today's interest rate decision. Despite a 0.5? rally in the morning, it settled on $US1.02.

Economists remained split on whether the Reserve Bank would cut rates, but markets were tipping a rate cut of 0.25 percentage points. Rates were cut by by 0.25 percentage points on Melbourne Cup day one month ago, the first time in 2 years.

It is an important week for economic data. Investors can expect news of interest rate decisions from the European Central Bank and the Bank of England on Thursday and investors are also awaiting news of Chinese inflation, due out on Friday, to see if recent moves by the country's central authorities to apply the economic brakes have been successful.

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Frequently Asked Questions about this Article…

What caused the ASX 200 to finish higher and build on last week's gains?

The S&P/ASX 200 rose 33.3 points (0.78%) to 4,321.3 as investors reacted to two main positives: the Australian Labor Party voted to end the ban on uranium exports to India, removing a growth hurdle for miners, and news that Italy's new cabinet agreed to pursue €30 billion of austerity and growth measures. Materials and energy stocks led the gains, helping the index rally about 8.7% over the past six trading days.

How did ending the uranium export ban to India affect Australian uranium and mining stocks?

Lifting the ban was seen as positive for uranium producers and broader miners because it paves the way for sales to India and potential nuclear-safeguards talks. Junior uranium miners outperformed the sector, and larger miners also benefited from the positive sentiment.

Which specific mining and uranium companies moved after the announcement?

Energy Resources of Australia led the pack, closing up about 9.8% at $1.57. Paladin Energy gained around 2.4% to $1.71. Major diversified miners also rose: BHP Billiton was up roughly 1.7% to $37.26 and Rio Tinto climbed about 1% to $67 a share.

What does lifting the uranium ban mean for Australia–India trade and diplomatic ties?

The decision removes a policy barrier to uranium sales and should allow the Gillard government to negotiate a nuclear-safeguards agreement with India. Trade between Australia and India was about $18.4 billion in 2010, so the move is intended to support closer diplomatic and trade links.

How did the Australian dollar react to the market news and upcoming events?

The Australian dollar rallied about 0.5% in the morning but then settled at around US$1.02 as traders waited for a key interest rate decision. The currency remained cautious because markets were bracing for central bank moves.

Are markets expecting an interest rate cut from the Reserve Bank and what should investors know?

Economists were split, but markets were tipping a 0.25 percentage-point cut from the Reserve Bank. The article notes rates were cut by 0.25 percentage points one month earlier (on Melbourne Cup day), the first cut in two years. Everyday investors should be aware that rate expectations can influence stock and currency volatility around decision dates.

What economic data and central bank events should everyday investors watch this week?

Key events highlighted include interest rate decisions from the European Central Bank and the Bank of England on Thursday, and Chinese inflation data due on Friday. Investors will be watching these releases to see whether central bank measures and policy moves are having the intended economic effects.

Is the recent market rally likely to continue and what are analysts saying?

Market strategists noted there is positive momentum but cautioned that more good news will be needed to sustain the rally. Cameron Peacock of IG Markets said investors need further positive developments to keep the market advance going, so monitoring policy announcements and economic data is important for everyday investors.