Despite a string of high-profile profit downgrades last week the sharemarket had its best day in months yesterday, as investors looked forward to a rate cut this afternoon from the Reserve Bank.
The local bourse enjoyed its highest monthly close since August, helped by banking and resource stocks, with traders shrugging off news that the US economy had grown by less than expected in the March quarter.
For April, the ASX200 made a small gain of 1.4 per cent - its fourth consecutive monthly gain. So far this year, the bourse has grown 8.4 per cent.
The S&P/ASX200 index rose 34.5 points, or 0.8 per cent, to 4396.6, while the All Ords gained 33.8 points, or 0.8 per cent, to 4467.2.
Sebastien Galy, a strategist at Societe Generale, said the market enjoyed a solid lift - despite profit downgrades last week from names such as Newcrest, JB Hi-Fi, and Seven West Media - because Friday's weak American gross domestic product data had increased the chances for more quantitative easing by the US Federal Reserve, which increased global risk appetite.
But the chief currency strategist at Commonwealth Bank, Joe Capurso, said further quantitative easing looked unlikely.
"We expect the US economic recovery to continue but remain patchy and vulnerable to external shocks," he said.
"While some US data such as retail sales and home building are gathering momentum, real household incomes and government spending remains very weak ... we do not think the Fed will be in a hurry implement QE3."
Meanwhile, on the eve of the Reserve Bank's expected rate cut, the Housing Industry Association weighed into the debate, calling 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 level in more than a decade.
The industrial services company Spotless was up 10? at $2.56 after it agreed to a takeover by private equity firm Pacific Equity Partners, at $2.71 a share.
The troubled miner Kagara has appointed voluntary administrators. The miner's shares have been in a trading halt at 12? for more than a week after plunging more over 68 per cent in the past three months.
National Australia Bank shares climbed 8? to $25.23 after it said it would restructure its loss-making business in Britain.
The other banks were all higher. Commonwealth Bank was up 38? at $51.97, ANZ was up 25? at $23.91 and Westpac was up 14? at $22.73.
Among the big miners, BHP Billiton was 66? higher at $35.55, Rio Tinto was 92? higher at $66.35 and Fortescue Metals was 1? higher at $5.64.
The Australian dollar climbed nearly a full US cent as global markets priced in the possibility that the US Fed could embark on a new round of economic stimulus. The local dollar was trading at US104.5?, up from US103.64? on Friday.
National turnover was 1.97 billion shares worth $3.69 billion.
Frequently Asked Questions about this Article…
Why did the ASX200 jump despite recent profit downgrades?
The ASX200 rose because investors priced in a likely Reserve Bank rate cut and improved global risk appetite after weaker-than-expected US GDP. Banks and resource stocks helped push the index up 34.5 points to 4,396.6. April was the ASX200's fourth straight monthly gain (about 1.4%) and the market is up roughly 8.4% year-to-date.
How did expectations of a Reserve Bank rate cut affect Australian sharemarket sentiment?
Anticipation of an RBA cash rate cut buoyed local markets, with traders hopeful for easier monetary policy. The Housing Industry Association even called for a 50 basis-point cut as new home sales hit lows, which added to the mood that lower rates could support housing and market activity.
What moved bank shares on the day and which major banks were higher?
Bank shares rose as investors reacted to company-specific news and the expectation of easier policy. National Australia Bank climbed after announcing plans to restructure its loss-making UK business (NAB traded around $25.23). Commonwealth Bank, ANZ and Westpac were also higher, trading at about $51.97, $23.91 and $22.73 respectively.
How did big miners perform and what were the notable miner share prices?
Major miners were stronger on the day, helping the market lift. BHP Billiton was trading near $35.55, Rio Tinto around $66.35 and Fortescue Metals near $5.64, with all three up versus the prior close.
What corporate events affected Spotless and Kagara shares?
Spotless jumped after agreeing to a takeover by private equity firm Pacific Equity Partners at $2.71 a share, with the stock trading around $2.56. Troubled miner Kagara appointed voluntary administrators; its shares were in a trading halt at about 12 cents after plunging more than 68% over the past three months.
Did US economic data and talk of Fed stimulus influence Australian markets?
Yes. Weaker US GDP data raised the odds of more Federal Reserve stimulus in some analysts' views, lifting global risk appetite and helping Australian stocks. However, other strategists cautioned that further quantitative easing in the US looked unlikely and the recovery remained patchy.
How did the Australian dollar react to global market moves?
The Australian dollar climbed nearly a full US cent as markets factored in the possibility of more US stimulus. It was trading around US104.5 cents (about US$1.045), up from roughly US103.64 cents on Friday.
What were the market turnover and breadth figures reported for the day?
The S&P/ASX200 rose 34.5 points to 4,396.6 and the All Ordinaries gained 33.8 points to 4,467.2. National turnover was about 1.97 billion shares worth approximately $3.69 billion.
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