Stocks surge on hopes of boost in US
The S&P/ASX 200 Index has surged 5.5 per cent since mid-November after shares on Tuesday posted their highest close of the year at 4576 points, boosted by signs of a rebound in the Chinese economy.
The resource sector led gains, with top miners BHP Billiton and Rio Tinto advancing 1.3 per cent and 0.8 per cent respectively after spot iron ore prices hit their highest level since July.
The Australian dollar also held close to multi-week highs on Tuesday, drawing support from expectations of fresh US economic stimulus measures, though investors kept a wary eye on developments in Italian politics. The Australian dollar was trading near an 11-week peak of $US1.0515 set last week.
Renewed optimism in equities contrast with fear gripping global markets midyear on concerns the global economy was facing the twin hit of a slowing China and splintering Europe.
Analysts said investors appeared to be rotating out of the year's top-performing sectors, such as telecommunications and healthcare stocks, and into material names, suggesting they were becoming less risk averse.
Even so, a series of business surveys painted a mixed picture of business confidence, with analysts looking for signs of whether the Reserve Bank would cut rates next year.
The National Australia Bank's survey of 600 firms found business confidence had fallen to the lowest level since the global financial crisis, as business conditions remained weak with little sign of a pre-Christmas revival.
In contrast, Roy Morgan's business confidence survey of 2800 companies was more positive and showed a lift from 114.0 to 116.8 in November, just off the highest level in 10 months.
Gains amid a two-day policy meeting by the US Federal Reserve, where analysts expect it to announce monthly bond purchases of $US45 billion, on top of the $US40 billion in mortgage-backed security purchases in September. Analysts said that the sharemarket could keep rising in coming months, but by the end of next year things would likely have worsened.
It comes at a strained time for Europe, where Italy's borrowing costs jumped and the sharemarket sank as economists predicted that the resignation of Prime Minister Mario Monti could plunge the eurozone back into crisis.
The November NAB survey said a strong Australian dollar, fiscal tightening and weak confidence was expected to weigh on near-term activity and allow for a further rate cut possibly in May 2013.
The monthly business condition index remained at minus 5, while business confidence fell to minus 9 from minus 1 in October.
Frequently Asked Questions about this Article…
The S&P/ASX 200 rallied as investors piled into mining and engineering stocks on expectations of fresh US Federal Reserve stimulus and signs of a Chinese economic rebound. The index hit a year high at about 4,576 points, up roughly 5.5% since mid-November.
Top miners led the gains: BHP Billiton rose about 1.3% and Rio Tinto about 0.8%. Their shares were lifted after spot iron ore prices climbed to their highest levels since July, which supported resource-sector strength.
Rising spot iron ore prices helped boost resource stocks and supported the broader market rally. Higher prices for key commodities tend to lift the share prices of large miners, which are significant weightings in the ASX 200.
Analysts expected the Fed to announce further monthly bond purchases (around US$45 billion on top of prior US$40 billion mortgage-backed security purchases), which encouraged risk-on sentiment in equities and helped push the Australian dollar near multi-week highs (around US$1.0515).
Surveys were mixed: the NAB survey of 600 firms reported business confidence at its weakest since the global financial crisis and business conditions remained weak (monthly condition index at minus 5; confidence fell to minus 9). By contrast, Roy Morgan's survey of 2,800 companies showed a lift in confidence from 114.0 to 116.8 in November. For investors, mixed surveys suggest short-term optimism in markets but underlying economic caution.
Yes. The article notes Italy’s political developments — including the resignation of Prime Minister Mario Monti — pushed up Italian borrowing costs and sent European markets lower. Such events can increase global market volatility and influence Australian markets, so investors often watch eurozone risks closely.
Analysts said the sharemarket could keep rising in the coming months but warned conditions would likely be worse by the end of next year. The market rally reflects shorter-term optimism, while longer-term risks remain.
Investors appeared to be rotating out of this year's top-performing sectors — such as telecommunications and healthcare — and into materials and resource names. That shift suggests market participants were becoming less risk averse and favouring cyclical, commodity-linked stocks during the rally.
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