Gold and bank stocks fuel bumper 3.4% rise for week
Local gold miners were back in favour as gold prices rebounded from recent lows. The price of gold has now recovered half of its recent losses, closing the week near $US1473 an ounce.
The banks were in strong demand for most of the week, all climbing by at least 3 per cent. Westpac closed the week at a record $32.57.
But concerns were raised about the outlook for economic growth after Australia's inflation rate rose by less than expected in the March quarter. The news prompted Treasurer Wayne Swan to say that the country could be in the grip of deflation.
For the week, the benchmark S&P/ASX200 jumped 165.6 points, or 3.4 per cent, at 5097.5, while the broader All Ordinaries jumped 159.8 points, or 3.2 per cent, at 5082.7. It was the biggest gain for the market since September 2011.
Australia's quarterly inflation rate rose by less than expected, coming in at just 0.4 per cent in the March quarter, against an expected 0.7 per cent. Economists said it was a surprising figure because the first quarter of the year is usually one of strong seasonal price increases.
It fell so low this week - annualised, the six-month inflation rate is 1.2 per cent - that Mr Swan said he was concerned the Reserve Bank would rethink its economic outlook.
"The gap between actual and expected outcomes reflected an extraordinary degree of retail price discounting and smaller than expected price rises in some seasonal items like education and health," Commonwealth Bank chief economist Michael Blythe said.
"Inflation is sufficiently tame for the RBA to implement another rate cut if demand conditions weaken."
It comes after World Bank chief economist Olivier Blanchard said last month that industrialised countries ought to consider temporarily raising their inflation targets to 4 per cent to help pay for their large public debts.
It was reported this week that the Reserve Bank plans to invest some of Australia's foreign currency assets in China for the first time. It was flagged as part of a move to deepen financial ties with the country, Australia's largest trading partner.
It intends to hold 5 per cent of its foreign currency assets in China. The bank's currency reserves are worth about $38.2 billion, according to its website.
For the week, the banks had a stellar run. Commonwealth Bank gained $2.06, or 3 per cent, at $70.84; Westpac jumped $1.34, or 4.3 per cent, at $32.57; National Australia Bank rose $1.18, or 3.8 per cent, at $32.63; and ANZ rose $1.47, or 5.2 per cent, at $29.88.
Rio Tinto gained $1.48, at $55.80, after the mining company lodged an appeal in the NSW Supreme Court against a decision to prevent it from expanding a coal mine.
This is an interesting court case, because the judge heard evidence that an unrealistic economic model was being used to support the miner's claim that scores of thousands of jobs would be created by the mine expansion.
Newcrest Mining gained 40¢, at $17.05, as the gold price rebounded. The rally came despite the miner flagging cuts to its workforce.
Frequently Asked Questions about this Article…
The ASX's biggest weekly gain since September 2011 was driven mainly by strong rallies in bank stocks and a rebound in gold and gold miners. The benchmark S&P/ASX200 jumped 165.6 points (3.4%) to 5,097.5 and the All Ordinaries rose 159.8 points (3.2%) to 5,082.7, while global bond markets also held on to recent gains.
Bank stocks led the market rally, each climbing at least 3% for most of the week. Commonwealth Bank gained $2.06 (about 3%) to $70.84; Westpac jumped $1.34 (4.3%) to a record $32.57; National Australia Bank rose $1.18 (3.8%) to $32.63; and ANZ added $1.47 (5.2%) to $29.88.
Gold prices recovered about half of their recent losses and closed the week near US$1,473 an ounce, which put local gold miners back in favour with investors. Newcrest Mining, for example, gained $0.40 to $17.05 as the gold price rebounded—even though the company has flagged cuts to its workforce.
Australia's quarterly inflation rose by less than expected — 0.4% in the March quarter versus an expected 0.7% — leaving the six‑month annualised rate at about 1.2%. The surprise low reading prompted Treasurer Wayne Swan to warn of possible deflation and led economists to say the Reserve Bank might rethink its outlook. Commonwealth Bank chief economist Michael Blythe noted the result reflected heavy retail discounting and smaller-than-expected seasonal price rises, and said inflation is tame enough that the RBA could implement another rate cut if demand weakens.
The article reported the Reserve Bank plans to invest some of Australia's foreign currency assets in China for the first time, flagging an intention to hold 5% of those assets in China. The bank's foreign currency reserves are reported to be worth about US$38.2 billion.
Rio Tinto gained $1.48 to $55.80 after lodging an appeal in the NSW Supreme Court against a decision that prevented it from expanding a coal mine. The court case drew attention because evidence was heard that an unrealistic economic model was used to support the miner's claim that tens of thousands of jobs would be created by the expansion.
Global bond markets held on to recent gains during the week, which coincided with the strong sharemarket performance. The article notes both equities (led by banks and gold miners) and bonds were positive, indicating simultaneous strength across these markets that week.
Everyday investors should keep an eye on incoming inflation data and any signals from the Reserve Bank about interest‑rate policy, since the lower‑than‑expected March quarter inflation reading has raised discussion of potential rate cuts. It's also sensible to monitor sector‑specific news highlighted by the rally: bank earnings and credit conditions, gold prices and miners’ operational updates (for example, Newcrest’s workforce changes), and company‑specific risks such as Rio Tinto’s legal appeal over a mine expansion.
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