Market rallies after US strikes debt ceiling deal

THE share market closed strongly firmer yesterday, following its best performance in over a week after a compromise was reached in the US to lift America's debt ceiling.

By InvestSMART · 21 Jul 2011

By InvestSMART ·
21 Jul 2011

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THE share market closed strongly firmer yesterday, following its best performance in over a week after a compromise was reached in the US to lift America's debt ceiling.

However, local traders said the rally could be short-lived because of ongoing debt concerns in Europe. The benchmark S&P/ASX200 index rose 81.6points, or 1.83per cent, to 4549.7, while the broader All Ordinaries index was up 79points, or 1.74per cent, at 4618.4.

Burrell Stockbroking adviser Jamie Elgar said the passage of legislation increasing the US' debt-ceiling bolstered the market. The legislative fix eased fears of a possible US default on its sovereign debt.

"The US is really focusing on that rather than the corporate earnings that have been coming out [in the US] that have been pretty good, and they were pretty good last night again on IBM and Apple," he said.

All sectors of the local market rose yesterday. Among banking stocks ANZ was up 43? at $21.20, National Australia Bank rose by 62? to $24.29, Westpac gained 48? cents to $21.16, and Commonwealth added $1 to $49.55.

News Corp was the best performer in the top 100 stocks, up 74?, or 5.1per cent, at $15.24, while its non-voting stock was up 67?, or 4.8per cent, at $14.75.

News chief executive Rupert Murdoch has said he would not resign because of the phone hacking scandal in Britain.

Building products suppliers James Hardie and Boral were good performers, after US data showed an increase in home building. James Hardie rose 10? to $5.80 and Boral was up 17?, or 4.18per cent, at $4.24.

In the resources sector, BHP Billiton was up 82?, or 1.92per cent, at $43.44 while Rio Tinto gained $1.22, or 1.5per cent, to $82.55.

BHP said it had achieved production records in four commodities in 2010/11, with production of iron ore posting its 11th consecutive record.

Retailer Woolworths reported a 4.7per cent lift in annual sales to $54.1 billion despite a challenging year characterised by falling prices. Its shares were up 20? at $27.45.

Other retail stocks also were higher. Wesfarmers was up 88? at $31.09, David Jones rose 3? to $3.16, Myer gained 7? to $2.44 and JB Hi-Fi was 31? higher at $15.36. Telstra shares were up 2?, at $3.06.

Preliminary national turnover was 2.53 billion shares worth $5.17 billion, with 771 stocks up, 318 down and 333 unchanged.

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Frequently Asked Questions about this Article…

Why did the ASX rally after the US debt ceiling deal?

The S&P/ASX 200 and All Ordinaries rose strongly after US lawmakers passed legislation to lift the debt ceiling, easing fears of a possible US sovereign default. The S&P/ASX200 climbed 81.6 points (1.83%) to 4,549.7 and the All Ordinaries gained 79 points (1.74%) to 4,618.4 as investors reacted to reduced tail‑risk from a US default.

Could this ASX rally be short‑lived and why should investors be cautious?

Yes. Local traders warned the rally might be short‑lived because of ongoing debt concerns in Europe. While the US debt deal removed a major near‑term risk, international sovereign and macro risks can still weigh on markets and quickly reverse sentiment.

How did major Australian bank shares perform during the rally?

Banking stocks were higher across the board: ANZ rose to $21.20, National Australia Bank reached $24.29, Westpac climbed to $21.16, and Commonwealth Bank added $1 to $49.55. The sector benefited from the broader market lift following the US debt‑ceiling development.

What happened to media stocks like News Corp and what did Rupert Murdoch say?

News Corp was the top performer among the top 100, up 74 cents (about 5.1%) to $15.24; its non‑voting stock rose 67 cents to $14.75. The article notes News Corp chief executive Rupert Murdoch said he would not resign over the phone‑hacking scandal in Britain.

Which building and construction suppliers moved higher and why should investors note this?

Building products suppliers James Hardie and Boral were stronger after US data showed an increase in home building. James Hardie rose to $5.80 and Boral was up to $4.24 (around a 4.18% gain). These moves show how positive US housing data can lift related export and construction stocks.

How did the resources sector perform and were there any company highlights?

The resources sector rose: BHP Billiton gained 82 cents (1.92%) to $43.44 and Rio Tinto added $1.22 (1.5%) to $82.55. BHP also reported production records in four commodities for 2010/11, including an 11th consecutive record for iron ore production.

What retail results and stock movements were reported that everyday investors should know?

Woolworths reported a 4.7% lift in annual sales to $54.1 billion despite a tough year and saw its shares rise 20 cents to $27.45. Other retailers were higher too: Wesfarmers $31.09, David Jones $3.16, Myer $2.44, and JB Hi‑Fi $15.36, indicating broad consumer‑sector strength on the day.

What was the market breadth and trading turnover on the day of the rally?

Preliminary national turnover was 2.53 billion shares worth $5.17 billion. Market breadth was positive with 771 stocks up, 318 down and 333 unchanged, showing the rally was broad‑based across sectors.