Good news on inflation sparks turnaround

STOCKS rebounded strongly to finish in positive territory after falling heavily in early trade.

By InvestSMART · 27 Oct 2011

By InvestSMART ·
27 Oct 2011

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STOCKS rebounded strongly to finish in positive territory after falling heavily in early trade.

The turnaround was led by the retailers and banks after the release of consumer price index data for the September quarter showed that inflation slowed.

IG Markets dealer Chris Weston said the market might hang on to its gains, despite trepidation about the European leaders summit last night.

It was news of the cancellation of a key meeting of European finance ministers scheduled for Tuesday night, the eve of the summit, that drained confidence from US and European markets.

That reaction carried over into Australian trading, sending the benchmark

S&P/ASX 200 Index down

54 points, or 1.3 per cent. The index finished with a gain of 14.6 points, or 0.35 per cent, at 4242.5.

National turnover was 1.67 billion shares worth $4.38 billion, with about

10 stocks falling for every nine that gained.

Mr Weston said the market now fully expected a rate cut.

"The discretionary stocks are looking like they're seeing a bit of leeway," he said.

The big four banks all closed higher after starting the day down. National Australia Bank, which reports its full-year earnings today, rose 28? to $24.95, Westpac put on 30? to $22.30 and Commonwealth gained 39? to close at $49.11 and ANZ firmed 4? to $21.59.

Retailers also rose, with Woolworths up 11? at $24.15, David Jones up 12?, or 3.7 per cent, at $3.36 and

JB Hi-Fi up 70?, or 4.7 per cent, at $15.74.

In the resource sector, goldminer Newcrest jumped $1.15, or 3.5 per cent, to $34.40 after a sharp rise in the gold price overnight. At the close of Australian trading yesterday, the spot gold price was up $US63.67 at $US1719.32 an ounce.

Intrepid Mines gained 10.5?, or 10 per cent, to $1.16, Perseus Mining rose 12?, or 3.9 per cent, to $3.23 and Alacer Gold rose 81?, or

7.8 per cent, to $11.19.

BHP dropped 23? to $36.94 and Rio Tinto was up 11? at $66.74.

Making news, Insurance Australia Group said it was on track to deliver on its full-year financial guidance after an encouraging performance in the first quarter. Its shares were up 4? at $3.16.

The December share price index futures contract was up six points at 4222, with 36,448 contracts traded.

The dollar closed down three-quarters of a US cent against the background of delays in Europe's debt crisis talks and soft local inflation figures. At 5pm, it was trading at $US1.0374, down from $US1.0456 on Tuesday.

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Frequently Asked Questions about this Article…

Why did Australian stocks rebound after early losses today?

Stocks recovered after consumer price index data for the September quarter showed inflation had slowed, which lifted retailer and bank shares and increased expectations that the RBA could cut rates. The positive inflation news helped markets regain losses even though concerns about Europe’s summit and a cancelled finance ministers’ meeting had dented confidence earlier.

How did the inflation update change rate cut expectations and investor sentiment?

The softer CPI print made markets more confident a rate cut is likely, with dealers saying the market now fully expects easing. That expectation gave discretionary and consumer-facing stocks more leeway, improving overall sentiment despite ongoing geopolitical uncertainty in Europe.

What happened to the S&P/ASX 200 and overall market activity?

The S&P/ASX 200 finished up 14.6 points (about 0.35%) at 4,242.5 after earlier falling roughly 54 points. National turnover was around 1.67 billion shares worth $4.38 billion, and broadly about 10 stocks fell for every nine that gained, showing mixed breadth despite the index rise.

How did the big four banks react to the CPI news and market moves?

All four major banks closed higher after starting the day down. National Australia Bank rose to $24.95 (and was reporting full‑year earnings that day), Westpac closed near $22.30, Commonwealth Bank at about $49.11 and ANZ around $21.59 — reflecting the interest in bank stocks after the inflation surprise.

Which retail and consumer stocks benefited from the market turnaround?

Retailers led the rebound: Woolworths rose to about $24.15, David Jones traded near $3.36 and JB Hi‑Fi was around $15.74, with investors favouring consumer and discretionary names after the softer inflation data.

What was the reaction in the resources sector, especially gold miners?

Gold miners outperformed after a sharp overnight rise in the gold price: Newcrest jumped $1.15 to $34.40 following spot gold gains (about US$63.67 to US$1,719.32/oz). Other miners such as Intrepid Mines, Perseus Mining and Alacer Gold also rose, while large diversified miners saw mixed moves (BHP fell to about $36.94, Rio Tinto rose to about $66.74).

Were there any company-specific updates that moved share prices?

Yes — Insurance Australia Group said it is on track to meet its full‑year guidance after an encouraging first quarter, and its shares rose to about $3.16. Also, NAB’s impending full‑year results were noted by the market as a near‑term event to watch.

How did the Australian dollar respond to the inflation print and European developments?

The Australian dollar weakened, closing down about three‑quarters of a US cent as delays in Europe’s debt‑crisis talks and the softer local inflation figures pressured the currency. At 5pm it was trading near US$1.0374, down from about US$1.0456 the previous day.