Index at seven-week high on Fed promise

THE sharemarket ended at a seven-week high yesterday, led by the resource and materials sector.

By InvestSMART · 28 Jan 2012

By InvestSMART ·
28 Jan 2012

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THE sharemarket ended at a seven-week high yesterday, led by the resource and materials sector.

The US Federal Reserve's pledge to keep interest rates low until 2014 increased Australian investors' appetite for riskier stocks.

The benchmark S&P/ASX 200 Index closed up 17.1 points, or

0.4 per cent, at 4288.4.

IG Markets market strategist Stan Shamu said the Australian market performed well after tentative opening gains following the Australia Day public holiday on Thursday.

"Rates might be on hold in the US until late 2014, which was really cheered by markets," Mr Shamu said. "The high-beta [riskier] stocks are doing quite well, we are quite leveraged to growth.

"We saw a massive rally in commodities as well following the FOMC [the Fed's Open Market Committee] meeting and that has extended to the resources here."

BHP Billiton closed up 24? at $37.66, Rio Tinto added $1.43, or

2.1 per cent, to $69.78 and Fortescue Metals shot up 20?, or 4.1 per cent, to $5.06.

Woodside Petroleum closed up 51?, or 1.5 per cent, at $34.48 after confirming it was considering a partial sell-down of its interest in the $US30 billion Browse liquefied natural gas project in Western Australia.

Newcrest shot up $1.25, or

3.8 per cent, to close at $34.40 in response to the sharp rise in gold that followed the announcement from the Fed.

At the close, spot gold was at $US1719.15 an ounce, up $US50.83 from Wednesday's close of $US1668.32.

The big banks lost some of their earlier gains. Westpac dipped 1? to $21.29, Commonwealth Bank advanced 16? to $51.16, ANZ firmed 8? to $21.50 and NAB shed 12? to $24.08.

The only sectors to finish weaker were defensives including consumer discretionaries, consumer staples, info techs and telcoms, which closed between 0.3 and 0.6 per cent softer.

US-based sleep-disorder specialist ResMed put on 19? to $2.73.

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Frequently Asked Questions about this Article…

Why did the Australian sharemarket hit a seven-week high?

The S&P/ASX 200 closed up 17.1 points (0.4%) at 4,288.4 as investors cheered the US Federal Reserve's pledge to keep interest rates low until 2014. That outlook boosted appetite for higher-risk, growth-linked stocks and sparked a commodities-led rally that pushed the market higher.

How did the US Federal Reserve's interest-rate guidance affect ASX investors and stock selection?

The Fed's promise of low rates through 2014 encouraged Australian investors to favour high-beta, growth and resources stocks over defensive names. According to IG Markets strategist Stan Shamu, markets welcomed the news and a strong commodities bounce followed the Fed meeting, lifting resource-related shares.

Which sectors led the gains on the day and why did commodities rally?

The resources and materials sectors led the gains as a commodities rally followed the Federal Open Market Committee meeting. Rising commodity prices made miners and related stocks more attractive, translating the global commodities move into stronger performance on the ASX.

How did major miners perform — what happened to BHP, Rio Tinto, Fortescue and Newcrest?

BHP Billiton closed at $37.66, Rio Tinto rose to $69.78 after adding $1.43 (about 2.1%), Fortescue Metals jumped to $5.06 (up roughly 4.1%) and Newcrest closed at $34.40 after gaining $1.25 (about 3.8%). These moves reflected the broader commodities rally that followed the Fed announcement.

What was the market reaction to Woodside Petroleum's announcement about the Browse LNG project?

Woodside Petroleum closed at $34.48, up around 1.5%, after confirming it was considering a partial sell-down of its interest in the US$30 billion Browse liquefied natural gas project. The news supported Woodside's share price amid the resource-led market strength.

What happened to gold prices and gold-focused stocks during the rally?

Spot gold rose to US$1,719.15 an ounce, up US$50.83 from the previous close of US$1,668.32, which helped lift gold stocks such as Newcrest — Newcrest gained roughly 3.8% to close at $34.40 in response to the sharp rise in gold.

How did the big Australian banks perform on the day?

Bank stocks showed mixed moves: Westpac closed at $21.29 (down), Commonwealth Bank rose to $51.16, ANZ firmed to $21.50, and NAB fell to $24.08. Overall, the big banks lost some earlier gains as the market rotated into resources and commodities.

Which sectors finished weaker and what does that mean for everyday investors?

Defensive sectors — including consumer discretionary, consumer staples, information technology and telecommunications — closed between 0.3% and 0.6% softer. For everyday investors, that signalled a short-term rotation into cyclical and resource-linked assets as risk appetite improved after the Fed's announcement.