THE sharemarket rose more than 2 per cent this week, to close back above the 4500-point level, thanks to encouraging signs that US politicians might work together to avoid the so-called fiscal cliff.
But the week still ended with most Australian economists predicting the Reserve Bank would cut the cash rate next week, due to signs of a serious deterioration in business confidence and sharp reductions in investment spending.
The benchmark S&P/ASX 200 Index rose 93 points, or 2.1 per cent, to 4506 points for the week. The All Ordinaries rose 86.5 points, or 1.9 per cent, to 4518 points.
Stepping away from the market this week, the head of the federal Treasury, Martin Parkinson, spoke a little on Wednesday about the risk of a global outbreak in inflation.
Dr Parkinson, while speaking at the Association of Superannuation Funds of Australia conference in Sydney, was asked by economist Dr Don Stammer if the massive increase in the global money supply could affect Australia's $1.5 trillion pool of super savings.
"If you look around the world, the GFC and the European crisis has caused each of the big central banks to create base money on an unprecedented scale," Dr Stammer said.
"That money's not circulating at present so it's not creating any problems. But if you look five [or] seven years ahead, what are the risks that money starts circulating, as it did after the Second World War when base money was expanded?"
He asked: can Australia avoid international inflation if it's heavy? Would an outbreak in global inflation impact Australia's superannuation funds?
But Dr Parkinson said he was not too concerned about that happening. "You're entirely right to be concerned about the risk of inflation because inflation hurts the poor," he said.
"[But] I'm not sure though that you should be worrying yourself . . . about the growth in base money. We actually know how to take . . . base money out of the system . . . [but] the question will be whether the central banks globally actually recognise the time to take it out. And if that doesn't happen then we will see inflation begin to pick up. But I suspect we're a long way from that situation, and when you do see inflation begin to tick up, you will see the central banks move."
For the week, BHP Billiton rose 64? to $34.39 even though
chairman Jac Nasser did not guarantee chief executive Marius Kloppers' job.
Rio Tinto rose $1.57 to $58.75 as it flagged job losses at its coal and aluminium operations after announcing a review to reduce costs by more than $US5 billion.
Qantas rose 5? to $1.32 after Tourism Australia reassured the industry the airline's decision to suspend its marketing partnership would not hinder its ability to promote the country overseas.
Primary Health Care rose 7? to $4 after the company looked on track to lift earnings by up to 25 per cent.
Frequently Asked Questions about this Article…
Why did the Australian sharemarket rise above the 4,500-point level this week?
Shares lifted after encouraging signs that US politicians might work together to avoid the so‑called fiscal cliff. That optimism helped the S&P/ASX 200 rise 93 points (about 2.1%) to 4,506 for the week, while the All Ordinaries gained 86.5 points to 4,518.
What is the 'fiscal cliff' and why should everyday investors care?
The 'fiscal cliff' refers to a set of US tax increases and spending cuts that could hit the global economy if lawmakers don’t reach agreement. Markets can move on the prospect of a deal or a deadlock, so developments around the fiscal cliff can drive short‑term volatility and affect investor sentiment worldwide — as seen in this week's ASX lift.
Are economists expecting the Reserve Bank to cut the cash rate, and what’s driving that view?
Yes — most Australian economists were predicting a cash‑rate cut next week. The expectation was driven by signs of a serious deterioration in business confidence and sharp reductions in investment spending, which could prompt the RBA to ease policy to support the economy.
Should I worry about a global inflation outbreak hurting Australian superannuation funds?
The article reports that Treasury head Martin Parkinson wasn’t highly concerned about an imminent global inflation outbreak. He noted central banks know how to remove excess base money and would act if inflation begins to pick up. While inflation is a valid long‑term risk, the view in the article was that we are a long way from that scenario for now.
What happened at BHP Billiton this week and does it matter for investors?
BHP Billiton shares rose to $34.39 during the week even though chairman Jac Nasser did not guarantee the job of chief executive Marius Kloppers. For investors, share moves amid executive uncertainty highlight the importance of monitoring both company leadership developments and underlying business performance.
Why did Rio Tinto shares rise, and what does its cost‑cutting review mean for shareholders?
Rio Tinto rose $1.57 to $58.75 after announcing a review to reduce costs by more than US$5 billion and flagging potential job losses at some coal and aluminium operations. For shareholders, such reviews can signal management efforts to protect margins, but they can also mean restructuring disruption — something to watch in future updates.
What drove the movement in Qantas shares this week?
Qantas shares rose to $1.32 after Tourism Australia reassured the industry that the airline’s decision to suspend its marketing partnership would not hinder Tourism Australia’s ability to promote the country overseas. The news helped ease investor concerns about the impact of that suspension.
Why did Primary Health Care shares move and what’s the company’s earnings outlook?
Primary Health Care rose to $4 after the company indicated it looked on track to lift earnings by up to 25%. That earnings guidance helped boost investor confidence in the stock during the week.
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