'Punch after the pinch' as mining hits back

THE sharemarket snapped its three-day losing streak yesterday to finish strongly on the back of resurgent mining stocks.

By InvestSMART · 3 Feb 2012

By InvestSMART ·
3 Feb 2012

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THE sharemarket snapped its three-day losing streak yesterday to finish strongly on the back of resurgent mining stocks.

Mining stocks soared after commodities prices rose overnight following encouraging German, Chinese and US manufacturing data.

Australian Bureau of Statistics data showing that the commodities boom had widened the trade surplus in December further underpinned resources stocks. "We're getting some punch after the pinch," said Bell Potter Brisbane senior adviser Stuart Smith. "The trade surplus is higher than expected, which will be a boon for our resources companies."

At the close, the S&P/ASX 200 Index was up 42.1 points, or 1 per cent, at 4267.8.

CMC Markets sales trader Ben Taylor said the positive overseas manufacturing data gave markets reason to take a more positive view of future earnings, given the local reporting season was about to get under way.

Resources also took heart from reports Glencore International was nearing an agreement to merge with Xstrata, adding mines from Africa to Asia to the world's largest listed commodity trader in a deal worth an estimated $US82 billion. Among mining stocks, BHP Billiton closed up 71? at $37.62, while Rio Tinto added $1.98 to $70.72.

Fortescue Metals was up 3? at $5.01 and goldminer Newcrest rose 42?, or 1.3 per cent, to $33.92.

The day's top performer was Lynas Corp, which surged 25.5?, or 19.1 per cent, to $1.59 after it was granted a temporary operating licence for its Malaysian rare-earths plant.

Qantas firmed 4? to $1.60 after the airline announced it would raise fares on domestic and international routes in response to increased fuel costs and carbon-pricing schemes in Australia and Europe.

Wesfarmers gained 19?, or 0.6 per cent, to $29.90 after its supermarket chain, Coles, reported its best-yet Christmas sales.

RBS Morgans Brisbane director of equities Bill Chatterton said the muted reaction to Coles' sales data was due to the relative strength of Wesfarmers' shares compared with rival Woolworths, as much of the good news seemed to already be priced in.

Woolworths, which on Wednesday reported quarterly sales at its key supermarket division were up just 1.1 per cent, closed down 10? at $24.60.

Westpac added 2? to $20.87 after the Finance Sector Union confirmed 560 jobs are to go at the bank in the latest round of cuts to hit the financial services sector.

Gold closed up $US9.45 at $U1746.45 an ounce.

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Frequently Asked Questions about this Article…

Why did the Australian sharemarket snap its three-day losing streak and the ASX200 finish higher?

The market rallied mainly because mining stocks bounced after commodities prices rose overnight on encouraging German, Chinese and US manufacturing data. Australian Bureau of Statistics data showing a wider-than-expected trade surplus also underpinned resources stocks, helping the S&P/ASX 200 close up 42.1 points at 4,267.8.

How did rising commodities prices and manufacturing data affect mining stocks on the ASX?

Positive overseas manufacturing reports lifted sentiment for future earnings and pushed commodities prices higher, which directly benefited mining and resources stocks. That improved outlook, together with a stronger trade surplus, led investors to buy into miners and related shares.

Which major mining companies led the gains and what were their closing prices?

Big miners performed well: BHP Billiton closed at $37.62, Rio Tinto rose $1.98 to $70.72, Fortescue Metals traded at $5.01, and gold miner Newcrest closed at $33.92 — all reflecting the broader resources-led rally reported in the article.

Why did Lynas Corp shares surge and how did the market react?

Lynas Corp jumped after it was granted a temporary operating licence for its Malaysian rare‑earths plant. The share price rallied strongly, closing at $1.59 on the news.

Did any corporate deals or merger news help lift resources stocks?

Yes. Reports that Glencore International was nearing agreement to merge with Xstrata — in a deal estimated at about US$82 billion that would add mines from Africa to Asia — helped boost sentiment across the resources sector.

What company-specific consumer and financial sector moves were mentioned and why did they matter?

Qantas firmed after announcing it would raise fares on domestic and international routes due to higher fuel costs and carbon-pricing schemes. Wesfarmers rose after its supermarket chain Coles reported very strong Christmas sales, while Woolworths fell despite a modest 1.1% lift in quarterly supermarket sales. Westpac also gained after confirmation that 560 jobs would be cut in the bank’s latest round of reductions.

How did analysts describe the impact of the trade surplus and reporting season on resources shares?

Bell Potter senior adviser Stuart Smith said the higher‑than‑expected trade surplus would be a boon for resources companies — “some punch after the pinch.” CMC Markets’ Ben Taylor added that positive overseas manufacturing data gave markets reason to be more optimistic about future earnings as the local reporting season was about to begin.

What happened to the gold price and did it affect gold stocks?

Gold rose, closing up US$9.45 at US$1,746.45 an ounce. That strength in the gold price was consistent with gains in gold-related stocks such as Newcrest, which rose to $33.92 during the session.