Resources lead upward surge
The benchmark S&P/ASX200 index was up 23.3 points, or 0.5 per cent, at 4671.3 on Friday, while the broader All Ordinaries index was up 23.9 points, or 0.51 per cent, at 4685.3. The market was expected to close lower this week amid nervousness about the US fiscal cliff negotiations, but investor sentiment improved when President Barack Obama cut short his holiday to try to strike a deal with Republicans in the US Congress.
Local stocks also gained strong momentum from rising iron ore prices. The biggest move came from iron ore miner Fortescue Metals, which posted big gains on Thursday after announcing it would restart the expansion of the Kings deposit at its Solomon iron ore mining hub. Fortescue shares closed another 11¢ higher at $4.64 on Friday.
The retail sector also helped keep the market buoyant after reports of relatively strong sales on Boxing Day. "The retail sector is having a good run following reports of record festive sales helped by low interest rates," an IG Markets analyst, Stan Shamu, said.
Investor sentiment may still fade away if a US political deal to avert the fiscal cliff crisis fails to emerge.
The US House of Representatives is due to meet on Sunday for urgent talks on a last-minute deal. Should a deal fail to emerge, equities market will come under pressure on Monday, according to Peter Dragicevich, a currency strategist at the Commonwealth Bank.
Saul Eslake, Australian economist with Bank of America Merrill Lynch, said the real economic effects of the fiscal cliff on Australia could be delayed but the impact on financial markets could be quick.
With the January 1 deadline just days away, experts say going over the "cliff" could take the world's biggest economy back into recession. The US Conference Board said that a similar decline occurred in August 2011 during debt ceiling discussions in Washington.
While most analysts are predicting the local effects of a crisis to be a downward pressure on Australian equities, Mr Eslake said there was a chance the dollar could rise, having more of a negative effect on the economy. "Instead of the dollar going down and providing a cushion for the economy, as it often does, the dollar could rise and thus compound the effects of a crisis." The Australian dollar traded higher earlier on Friday but settled at US103.77¢ at the close of Friday, down from US104.01¢ earlier in the week.
On the back of the improving iron ore price, Rio Tinto rose $1.08, or 1.65 per cent, to $66.53 on Friday. BHP Billiton rose 41¢, or 1.1 per cent, at $37.40. Retail stocks rallied on the back of improving holiday sales. JB Hi-Fi rose 9¢ to $10.35. Myer and David Jones were each 2¢ higher, at $2.15 and $2.43 respectively. Harvey Norman rose 4¢ to $1.925.
Across the Tasman, the New Zealand market hit a five-year high, with the NZX 50 rising 15.45 points to 4080.90, the highest close since December 2007, bringing its gain this year to 24 per cent.
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The Australian sharemarket rose to 19-month highs and was up more than 15% for the year largely because resources stocks rallied on rising iron ore prices and retail stocks benefited from strong Boxing Day sales. The S&P/ASX200 closed up 23.3 points at 4,671.3 on the last full trading day of 2012.
Rising iron ore prices gave strong momentum to local stocks. Fortescue Metals announced it would restart expansion of the Kings deposit at its Solomon iron ore hub, and its shares gained further—closing another 11¢ higher at $4.64—helping lift the broader market.
On the day of the rally Rio Tinto rose $1.08, or 1.65%, to $66.53, while BHP Billiton added 41¢, or 1.1%, to $37.40 — both benefitting from the improving iron ore price environment mentioned in the article.
Retail stocks helped keep the market buoyant after reports of relatively strong Boxing Day sales. IG Markets analyst Stan Shamu said the retail sector was having a good run thanks to record festive sales and low interest rates. Specific moves included JB Hi‑Fi up 9¢ to $10.35, Myer and David Jones each 2¢ higher, and Harvey Norman up 4¢ to $1.925.
The 'US fiscal cliff' refers to a set of automatic tax increases and spending cuts due to take effect if US lawmakers don’t reach a deal. The article notes investor sentiment could turn negative if a deal fails, with experts warning Australian equities could come under pressure and financial-market effects could be quick even if real economic impacts are delayed.
Analysts in the article flagged two possible effects: a US political failure could put downward pressure on Australian equities, and paradoxically the Australian dollar could rise rather than fall, which would compound negative effects on the economy. The AUD traded at US103.77¢ at the close, down slightly from US104.01¢ earlier in the week.
Peter Dragicevich, a currency strategist at the Commonwealth Bank, warned that if US lawmakers failed to reach a deal to avert the fiscal cliff, equities markets would likely come under pressure when markets reopened—specifically noting potential weakness on the following Monday.
The New Zealand market also hit multi-year highs: the NZX 50 rose 15.45 points to 4,080.90, its highest close since December 2007, bringing its gain for the year to about 24%, outperforming the Australian market’s year-to-date rise reported in the article.
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