Domestic growth data gives market a boost

THE local market rose 0.7 per cent as hopes for a new debt deal in Europe and forecast-beating economic growth for the September quarter boosted investor appetite.

By InvestSMART · 8 Dec 2011

By InvestSMART ·
8 Dec 2011

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THE local market rose 0.7 per cent as hopes for a new debt deal in Europe and forecast-beating economic growth for the September quarter boosted investor appetite.

The benchmark S&P/ASX200 index eased from earlier highs but closed up 30.5 points, or 0.7 per cent, at 4292.5, while the All Ordinaries rose 29.7 points to 4351.3.

Europe's new debt plan, to be presented at this week's leaders' summit, is expected to double the size of the rescue fund for indebted nations and include backing from the International Monetary Fund.

The news helped markets shrug off a warning from Standard & Poor's that 15 euro zone nations could face a credit rating downgrade if they fail to reach an agreement. But the City Index analyst Peter Esho noted markets were still struggling to break above the "key" 4300 level as investors remain cautious in the uncertain climate.

Markets received a further boost yesterday from data showing the economy grew by 1 per cent in the September quarter. Growth in the quarter to June was revised up to 1.4 per cent. "The domestic economy seems to be cracking along at quite a strong pace," the Commonwealth Bank economist James McIntyre said.

Telecoms and healthcare stocks stood out on the day.

Telstra rose 4? to $3.25. Mr Esho said the company remained attractive as the telco giant was maintaining its dividend, despite difficult market conditions. Telecom New Zealand added 3.5? to $1.55. Among health stocks, CSL added 1.5 per cent to $32.44 and Ramsay Health Care gained 2.5 per cent to $19.26.

Meanwhile, the market is waiting to see if the big banks will pass on the cut in the cash rate by the Reserve Bank. ANZ led the gains among the big banks, rising 1.2 per cent to $21.24. Bank of Queensland rose by 19? to $8.13, despite S&P downgrading its issuer credit rating.

BHP Billiton gained 31? to $37.02 and Rio Tinto rose 70? to $66.25. Investors were closely watching BlueScope's $600 million equity issue, pitched at a 34.4 per cent discount to the prevailing share price.

Mr Esho said the poor take up of the stock could be a warning to companies looking to raise funds. "When the next company that goes out and tries to raise money, the bankers will be very mindful," he said.

Turnover was 1.9 billion shares worth $3.8 billion.

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Frequently Asked Questions about this Article…

Why did the ASX200 and All Ordinaries rise in the recent session?

The local market rose about 0.7% as the S&P/ASX200 closed up 30.5 points at 4,292.5 and the All Ordinaries gained 29.7 points to 4,351.3. Investors were boosted by hopes for a new Europe debt deal and stronger‑than‑expected domestic growth data for the September quarter.

How did the September quarter GDP result affect Australian share markets?

Markets got a lift after data showed the economy grew 1.0% in the September quarter (with the June quarter revised up to 1.4%). Commonwealth Bank economist James McIntyre said the domestic economy was "cracking along at quite a strong pace," which supported investor appetite.

What impact did news of a potential Europe debt plan have on investor confidence?

Reports that Europe’s leaders may present a debt plan that could double the rescue fund and include IMF backing helped markets shrug off a Standard & Poor’s warning about possible euro‑zone downgrades, giving investors more confidence in risk assets.

Which sectors and individual stocks stood out on the day and why should investors note them?

Telecoms and healthcare were notable movers: Telstra rose to $3.25 and Telecom New Zealand to $1.55, while CSL reached $32.44 and Ramsay Health Care $19.26. Major miners and banks also moved (BHP Billiton to $37.02, Rio Tinto to $66.25, ANZ to $21.24 and Bank of Queensland to $8.13), illustrating that both defensive and cyclical names responded to the macro headlines.

Is Telstra still an attractive dividend stock according to the article?

Yes — City Index analyst Peter Esho noted Telstra remained attractive because it was maintaining its dividend despite difficult market conditions, which supported the stock’s rise to $3.25 on the day.

What should everyday investors understand about BlueScope’s $600 million equity issue?

BlueScope pitched a $600 million equity issue at a steep 34.4% discount to the prevailing share price. Poor take‑up of that offer, the article warns via Peter Esho, could be a warning sign for companies planning to raise funds and could make bankers more cautious on future deals.

Will the big banks pass on a Reserve Bank cash rate cut to customers?

The article says the market is waiting to see if the big banks will pass on any cut in the cash rate by the Reserve Bank. There’s no definitive answer in the piece—investors were watching bank shares (ANZ led gains) for clues, but pass‑through remained uncertain.

How active was trading during the session and why does that matter for investors?

Turnover was 1.9 billion shares worth $3.8 billion. Higher turnover indicates good market liquidity and active investor participation, which can make it easier to buy or sell positions at market prices.