Easing inflationary pressures bolster market

THE local market closed at a six-week high after data showing an easing of inflation boosted hopes for further interest rate cuts.

By InvestSMART · 26 Jan 2012

By InvestSMART ·
26 Jan 2012

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THE local market closed at a six-week high after data showing an easing of inflation boosted hopes for further interest rate cuts.

Financial stocks surged 2 per cent on hopes that a rate cut by the Reserve Bank could help boost profits. At the close yesterday, the benchmark S&P/ASX200 index was up 47.1 points, or 1.1 per cent, at 4271.3, its highest since December 8. The broader All Ordinaries index was up 42.7 points, or 1 per cent, at 4329.1. The March share price index futures contract was up 46 points at 4238.

"There are a lot of people looking for yield right now as the [debt crisis] overseas is lingering on," Cameron Securities client adviser Adrian Leppinus said. "And if we do get another rate cut, people are expecting [the banks] might not pass on the full amount and that will ease off on their margins."

Market heavyweight BHP Billiton was up 34?, or 0.92 per cent, at $37.42 while rival Rio Tinto was steady at $68.35. Rio says it now holds a majority stake in Ivanhoe Mines, further extending its control over huge Mongolian gold and copper deposits.

Among the banks, Westpac surged 3.5 per cent, or 72?, to $21.30 - its highest since December 8.

Commonwealth Bank closed up 2.4 per cent, or $1.20, at $51, ANZ gained 2.2 per cent, or 47?, to $21.42 and National Australia Bank rose 2 per cent, or 48?, to $24.20.

The industrials sector added 1.1 per cent after strong results from Monadelphous spurred hopes for good earnings from the sector next month. The engineering firm ended the day up 30? at $21.82 after it said its first half earnings were set to grow up to 27 per cent.

"Results like this will help other mining services stocks, which have recently been beaten down," City Index analyst Peter Esho said.

Lynas Corp was among the top performers, adding 5.1 per cent, or 6.5? to $1.345 after the company said it had secured enough funds to complete the construction and start of its delayed rare earths processing plant in Malaysia.

Whitehaven Coal was up 10? at $5.53 after it reported increased production by 2 per cent in the December quarter although sales fell.

Atlas Iron was one of the day's losers, shedding losing 4.3 per cent or 14? to $3.12.

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Frequently Asked Questions about this Article…

Why did the ASX200 close at a six‑week high and what drove the share market rally?

The ASX200 hit a six‑week high after data showed easing inflation, which boosted hopes of further Reserve Bank interest rate cuts. That optimism lifted financial stocks and pushed the benchmark S&P/ASX200 up 47.1 points (1.1%) to 4,271.3, while the All Ordinaries rose 42.7 points (1.0%) to 4,329.1.

How does easing inflation affect interest rate cut expectations and bank shares?

Easing inflation raises expectations that the Reserve Bank may cut rates, which can lift bank share prices because lower rates can stimulate lending. On the day reported, financial stocks surged about 2% as investors priced in possible rate cuts, although advisers noted banks might not pass on the full cut — a factor that could ease their margins.

How did the major Australian banks perform during the rally?

Major banks gained strongly: Westpac jumped 3.5% to $21.30 (its highest since December 8), Commonwealth Bank rose 2.4% to $51.00, ANZ gained 2.2% to $21.42, and National Australia Bank increased 2.0% to $24.20.

What happened to big miners BHP Billiton and Rio Tinto on the day?

BHP Billiton climbed about 0.92% to $37.42, while Rio Tinto was steady at $68.35. Mining stocks were part of the broader market movement driven by commodity and corporate updates.

What is the significance of Rio Tinto taking a majority stake in Ivanhoe Mines?

According to the article, Rio Tinto now holds a majority stake in Ivanhoe Mines, which further extends its control over large Mongolian gold and copper deposits. For investors, this is a notable corporate development in the mining sector reported in the market update.

Why did the industrials sector lift and what did Monadelphous report?

The industrials sector added 1.1% after Monadelphous reported strong results. The engineering firm said first‑half earnings were set to grow by up to 27%, and its share price jumped roughly 30% to $21.82. Analysts suggested these results could help other beaten‑down mining services stocks.

What’s the latest on Lynas Corp and its rare earths project in Malaysia?

Lynas Corp was among the top performers, rising about 5.1% to $1.345 after announcing it had secured sufficient funding to complete construction and start its delayed rare earths processing plant in Malaysia.

How did Whitehaven Coal and Atlas Iron move and why should investors care?

Whitehaven Coal jumped roughly 10% to $5.53 after reporting a 2% increase in production in the December quarter, despite a fall in sales. Atlas Iron was one of the day's losers, falling about 4.3% to $3.12. These moves highlight how company‑level production and sales updates can sharply affect mining stock prices on the ASX.