Index scores fourth straight monthly gain

DESPITE last week's string of high-profile profit downgrades, the sharemarket yesterday had its best day in months, as investors looked forward to

By InvestSMART · 1 May 2012

By InvestSMART ·
1 May 2012

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DESPITE last week's string of high-profile profit downgrades, the sharemarket yesterday had its best day in months, as investors looked forward to

a rate cut today from the Reserve Bank.

The market made its highest monthly close since August 2, helped by local banking and resource stocks, with traders shrugging off news the US economy had grown less than expected in the March quarter.

For April, the S&P/ASX 200 Index gained 1.4 per cent its fourth consecutive monthly gain. The benchmark index has risen 8.4 per cent since the start of the year. Yesterday it put on 34.5 points, or 0.8 per cent, to 4396.6.

Societe Generale strategist Sebastien Galy said the market enjoyed a solid lift because Friday's weak US GDP data had increased the chances of more quantitative easing by the US Federal Reserve, thus raising global risk appetite.

But Commonwealth Bank chief currency strategist Joe Capurso said further quantitative easing looked unlikely.

"We expect the US economic recovery to continue but remain patchy and vulnerable to external shocks," Mr Capurso said.

"While some US data such as retail sales and home building are gathering momentum, real household incomes and government spending remain very weak . . . we do not think the Fed will be in a hurry to implement QE3."

Meanwhile, on the eve of the RBA's highly anticipated rate cut, the Housing Industry Association called for the central bank to slash the cash rate by 50 basis points in one hit. This followed a survey that showed new home sales had fallen to their lowest in more than a decade.

Industrial services company Spotless was up 10? at $2.56 after it agreed

to a full takeover by private equity firm Pacific Equity Partners, at $2.71 a share.

Gold, copper and silver miner Kagara appointed voluntary administrators. The miner's shares have been in a trading halt at 12? for more than a week after plunging more than 68 per cent in the past three months.

Shares in NAB climbed 8? to $25.23 after it said it would restructure its loss-making UK operation.

The other big banks also rose, Commonwealth up 38? at $51.97, ANZ up 25? at $23.91 and Westpac up 14? at $22.73.

BHP Billiton rose 66? to $35.55 and Rio Tinto was 92? higher at $66.35.

The dollar climbed nearly US1? on the possibility of a new round of US economic stimulus. At 5pm the Aussie was at US104.58?, up from US103.64? on Friday. With AAP

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Frequently Asked Questions about this Article…

What drove the S&P/ASX 200’s fourth straight monthly gain in April?

The S&P/ASX 200 rose 1.4% in April, marking its fourth consecutive monthly gain and putting the benchmark up about 8.4% since the start of the year. The market hit its highest monthly close since early August, with yesterday’s session adding 34.5 points (to 4,396.6). Local banking and resources stocks helped drive the gain, and investors were also looking forward to a likely Reserve Bank rate cut.

How did expectations of an RBA rate cut affect the Australian sharemarket?

Anticipation of a Reserve Bank rate cut contributed to a strong market day, as investors priced in easier monetary conditions. The Housing Industry Association urged a 50 basis-point cut and pointed to new-home sales falling to their lowest level in more than a decade, which added to calls for easing.

Did weaker US GDP data influence Australian markets and investor sentiment?

Yes. Softer US GDP for the March quarter increased talk that the US Federal Reserve might consider more stimulus, which Societe Generale strategist Sebastien Galy said lifted global risk appetite. However, Commonwealth Bank strategist Joe Capurso warned further US quantitative easing looked unlikely, noting the recovery remained patchy.

What happened with Spotless and the takeover by Pacific Equity Partners?

Industrial services company Spotless jumped to $2.56 after agreeing to a full takeover by private equity firm Pacific Equity Partners at $2.71 a share, according to the report.

What’s the latest on miner Kagara and its shares?

Gold, copper and silver miner Kagara appointed voluntary administrators. Its shares have been in a trading halt at 12 cents after plunging more than 68% over the past three months.

How did the major Australian banks perform and what pushed their shares higher?

Bank shares were a key support for the market. NAB climbed to $25.23 after announcing plans to restructure its loss-making UK operation. Other big banks also rose, with Commonwealth at $51.97, ANZ at $23.91 and Westpac at $22.73, helping lift the benchmark.

How did major miners like BHP Billiton and Rio Tinto move, and why does that matter for investors?

Major miners helped drive the resources-led rally: BHP Billiton rose to $35.55 and Rio Tinto to $66.35. Strength in large resource stocks can have an outsized effect on the ASX 200, so everyday investors often watch these names for signals about market direction.

What happened to the Australian dollar and what was behind the move?

The Australian dollar strengthened on talk of possible further US economic stimulus. By 5pm it stood around US104.58 cents, up from about US103.64 cents on the prior Friday, reflecting improved risk appetite tied to potential global stimulus measures.