Comments from the chairman of the US Federal Reserve, Ben Bernanke, that he would consider doing more to stimulate growth in the United States helped lift the local market yesterday.
The news raised expectations of a third round of quantitative easing, which would free up billions of dollars for the US financial system, and led to a positive lead from Wall Street. The Dow Jones Industrial Average rose 89.16 points, or 0.7 per cent, to 13,090.
The local bourse shot out of the opening gates, with a helping hand from the mechanics of the stockmarket: it was "options expiry day" on the ASX.
"We think there were some buy-on-open type orders that got filled in pretty quickly," the director of E.L.&C.Baillieu Stockbroking, Richard Morrow, said.
"Some big investing institutions have mandates that if they buy or sell any stock they have to do it at the start or end of the day, and we think that happened [in the morning]."
But after the initial spike, investors retreated and the market eased back.
The S&P/ASX200 index closed up 14.8 points, or 0.3 per cent, at 4375.2, while the All Ordinaries index was up 11.1 points, or 0.3 per cent, at 4445.
Among the sectors, financials rose 0.5 per cent, industrials gained 0.6 per cent, while materials ended flat. Telcos jumped 1.1 per cent but the gold sub-index lost 1.8 per cent.
Television stocks continued to be pummelled yesterday in response to Seven West Media cutting its earnings forecasts.
Earlier in the week Seven had said despite expecting an improvement in the advertising market, conditions had not improved. Its earnings forecast for the financial year was reduced to between $460 million and $470 million. The market had been expecting full year earnings of about $520 million. Seven West shares fell 86?, or 22.8 per cent, to $2.91, pulling other media stocks down.
Southern Cross shares fell 4.1 per cent, at $1.31, and Prime Media fell 2.7 per cent to 72?. Fairfax Media shares fell 2? to 70?, while Ten Network was steady at 81.5?.
Telstra shares rose 4? to $3.51, the highest level since August 2009.
Leighton Holdings stocks rose 10? to $20.28, after its Middle East operation - part of a joint venture - was awarded a $US169 million ($163 million) contract for work on a mine in Saudi Arabia.
Lend Lease shares were steady, at $7.35, after the property developer said fraudulent activities which prompted a legal investigation into the company's Bovis arm in the US no longer took place.
The uranium explorer Marathon Resources rose half a cent to 6.5? after it said it would use a $5 million compensation payment from the South Australian government to investigate new projects.
Atlas Iron rose 2? to $2.87 on news that it and rail operator QR National were looking to build a line linking mines in Western Australia's Pilbara region to Port Hedland.
National turnover was 2.1 billion shares worth $4.6 billion.
Frequently Asked Questions about this Article…
What drove yesterday's rise in the ASX and other markets?
The market rallied after US Federal Reserve chairman Ben Bernanke said he would consider further stimulus, raising expectations of a third round of quantitative easing. That gave Wall Street a boost (the Dow rose about 89 points), and the local market also benefited from options-expiry-related buying at the open.
How did talk of more quantitative easing (QE3) affect investor sentiment?
Comments that the Fed might do more to stimulate growth raised expectations that QE3 could free up billions for the US financial system. That positive lead from Wall Street supported risk assets in Australia and helped lift the S&P/ASX200, which closed up about 0.3%.
What is 'options expiry day' and why can it move the ASX?
Options expiry day is when many derivatives contracts settle, and some big institutions have mandates to execute trades at the market open or close. That can create 'buy-on-open' or 'sell-on-open' pressure and lead to sharp early moves, like the spike seen yesterday before the market eased back.
Why were television and media stocks hit so hard, and what happened to Seven West Media?
Television stocks fell after Seven West Media cut its full-year earnings forecast to between $460 million and $470 million (below market expectations of about $520 million). Seven West shares plunged about 22.8% to $2.91, which dragged other media names lower, including Southern Cross and Prime Media.
Which sectors led gains and losses on the ASX that day?
Financials rose around 0.5% and industrials gained about 0.6%. Telcos jumped roughly 1.1%, while materials were flat. The gold sub-index was weaker, losing about 1.8%.
Were there any company-specific wins or headlines investors should note?
Yes. Leighton Holdings jumped after its Middle East joint venture won a US$169 million contract for mine work in Saudi Arabia. Telstra rose around 4% to $3.51 — its highest level since August 2009. Lend Lease was steady after saying previously flagged fraudulent activity in its US Bovis arm 'no longer took place.' Marathon Resources said it would use a $5 million compensation payment to investigate new projects.
How much trading activity was there during the session?
National turnover for the day was about 2.1 billion shares worth roughly $4.6 billion, indicating solid market participation.
Does a single-day rise after Fed stimulus talk mean the market has turned — should everyday investors be cautious?
A single-day rally driven by stimulus hopes and options-exiry mechanics doesn't guarantee a sustained recovery. The article notes that after the early spike many investors retreated and the market eased back. Everyday investors should view such moves in context of broader fundamentals and avoid assuming a one-day gain signals a long-term trend.
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