Stocks hang on to sliver of early gain

THE sharemarket gave up most of an early 36-point gain yesterday as investors speculated on whether US policymakers would unleash fresh stimulus for the world's largest economy amid the deepening economic crisis in Europe.

By InvestSMART · 21 Jun 2012

By InvestSMART ·
21 Jun 2012

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The S&P/ASX 200 Index limped to a 9.1-point, or 0.22 per cent, gain at 4132.4.

The US Federal Reserve is expected to signal an intent to stimulate its economy, but analysts fear anything less than concrete action would be met with disappointment by the mark.

"Although there is a growing number of analysts who feel we will see some form of [stimulus], there is also a possibility that we will simply get an adjustment in the policy language to indicate the Fed's greater readiness to ease in future, particularly given the increased risks to the outlook arising from the eurozone crisis," said IG Markets strategist Stan Shamu.

"Whichever way it plays out, we are likely to see some big moves in the currency space," he said.

And despite the Reserve Bank's two rate cuts at the end of last year, data from the Bureau of Statistics yesterday showed housing starts tumbled 12.6 per cent for the first three months of the year. Analysts had tipped a 2.3 per cent fall. On an annual basis, new home starts tumbled 24.5 per cent, the ABS said.

"It's a very disappointing number," said Moody's analyst Katrina Ell. "It shows consumers are still very cautious and the housing market is still very weak, and we haven't really seen the stimulatory impact of the rate cut coming through."

Despite the gloom, shares in building materials company James Hardie gained 6?, or 0.8 per cent, to $7.77, on positive housing starts data out of its main market in the US.

Consolidated Media Holdings jumped 30?, or 9.7 per cent, to $3.38 in response to a $1.97 billion, $3.50-a-share takeover bid from News Ltd that will lift its ownership in Foxtel and Fox Sports to 50 per cent and 100 per cent respectively.

Rio Tinto gained 95?, or 1.7 per cent, to $57.72 after the company said it would will spend $3.7 billion to increase iron ore output in Australia by a further 25 per cent to 353 million tonnes a year by 2015, despite forecasts of waning global demand.

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Frequently Asked Questions about this Article…

What happened to the ASX (S&P/ASX 200) in the latest trading session?

The sharemarket gave up most of an early 36-point gain and the S&P/ASX 200 ultimately recorded a modest 9.1-point (0.22%) rise, finishing at 4,132.4 as investors weighed global risks and policy signals.

Why were investors watching the US Federal Reserve for stimulus and how did that affect markets?

Investors were speculating that the US Federal Reserve would signal an intent to stimulate the economy amid the eurozone crisis. Analysts warned that anything short of concrete action could disappoint the market, and an adjustment in policy language — rather than immediate stimulus — may be all that is delivered, which itself could still drive big moves in markets.

How did recent Australian housing starts data influence investor sentiment?

ABS data showed housing starts fell 12.6% in the first quarter (versus an expected 2.3% fall) and were down 24.5% year‑on‑year. Analysts described the result as very disappointing, highlighting cautious consumers and a still‑weak housing market despite the Reserve Bank's rate cuts.

Why did James Hardie shares rise despite weak Australian housing numbers?

James Hardie shares rose 0.8% to $7.77 because the company benefits from housing activity in its main market, the US — the article notes positive housing starts data out of the US helped lift the stock even as Australian starts slumped.

What caused Consolidated Media Holdings (CMH) shares to jump?

Consolidated Media Holdings jumped after News Ltd lodged a $1.97 billion takeover bid at $3.50 a share. The deal would lift News Ltd’s ownership in Foxtel to 50% and in Fox Sports to 100%, and CMH shares rose 9.7% to $4.38 on the news.

What did Rio Tinto announce about iron ore and how did the market respond?

Rio Tinto said it would spend $3.7 billion to increase Australian iron ore output by a further 25% to 353 million tonnes a year by 2015. The announcement lifted Rio Tinto shares 1.7% to $57.72 despite forecasts of waning global demand.

Could Fed signals and the eurozone crisis affect currency markets?

Yes. IG Markets strategist Stan Shamu warned that whether the Fed delivers concrete stimulus or merely tweaks policy language, the situation — together with eurozone risks — is likely to produce significant moves in the currency space.

What are analysts saying about the effectiveness of recent Australian rate cuts on the housing market?

Moody's analyst Katrina Ell called the housing starts data 'very disappointing,' saying it shows consumers remain cautious and the housing market is still very weak, and that the stimulatory impact of the Reserve Bank's recent rate cuts has not yet appeared in the data.