Market gets off to a flying start after US fiscal cliff deal
The ASX200 closed at 4705.9 - a 19-month high - and recorded its biggest percentage gain in one day in five months.
"It's a relief rally that's taken shape with the fiscal cliff out of the way for the moment," said BBY institutional dealer Anson Rosewall. But he cautioned that trading volumes were unusually thin and open to exaggerated moves.
The Australian dollar rose against the US dollar, fetching just under US105¢. An appetite for risk saw the Japanese yen falling broadly, helping to lift the Australian dollar to as high as 91.535 yen.
But while the market reacted favourably to the deal, more political bickering in the US was expected to take place over the debt ceiling, reintroducing uncertainty into the market, said Justin Fabo, the head of ANZ's economics department.
"What we saw last time this happened is that it will possibly again create all this uncertainty," Mr Fabo said about the last debt ceiling fight in 2011.
"The main effect on Australia will be through confidence channels. We still think that these things get resolved, it's just that that tends not to happen straight away.
"In the meantime, the uncertainty tends to have an adverse effect on confidence, not just in the US but also in Australia."
Mr Fabo said he expected any negative repercussions on Australia to be short-lived, with domestic issues still taking precedence in their impact on the local economy.
He said economic data, such as the surprise fall in house prices nationally for December, and the fall in private sector credit levels, indicated that the Reserve Bank was still likely to cut interest rates again when it meets early next month.
"There's still not a lot of evidence that the interest rate-sensitive parts of the economy are picking up strongly enough. So our view is that there are further cuts to rates to come," he said.
Market report— Page 14
Frequently Asked Questions about this Article…
The market rallied after the US Congress supported a deal to avert the 'fiscal cliff', which reduced immediate global risk and drove a relief rally. The ASX200 closed more than 1.2% higher on the first trading day of 2013, hitting 4705.9 — a 19‑month high.
The ASX200’s close at 4705.9 marked its best start to a year in over a decade and its biggest one‑day percentage gain in five months, signalling a notable boost in market sentiment following the US fiscal‑cliff deal.
Risk appetite rose: the Australian dollar strengthened to just under US$0.105 and climbed to as high as 91.535 yen as the Japanese yen weakened. Currency moves like this can affect returns for investors with foreign exposure or companies with offshore earnings.
The article cautions that trading volumes were unusually thin, which can amplify price swings. That means short‑term moves may look larger than underlying fundamentals justify, so investors should avoid overreacting to single‑day volatility.
Yes. Justin Fabo of ANZ noted that further US political fights over the debt ceiling could reintroduce uncertainty and affect confidence globally and in Australia, even if such effects are expected to be short‑lived.
The article mentioned a surprise national fall in house prices for December and a decline in private sector credit levels—factors that suggest the Reserve Bank of Australia might be likely to cut interest rates again.
The main channel is confidence: uncertainty from US political or fiscal problems can dent investor and consumer confidence in Australia. However, the article notes domestic issues generally have a larger and more lasting impact on the local economy.
Stay aware that geopolitical and political developments (like the fiscal cliff or debt ceiling fights) can drive short‑term market moves, but also watch domestic indicators such as house prices and credit flows—these help signal where monetary policy and markets may head next.
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