Wall Street record high fans optimism
The key US index, which weighs up the share prices of 30 top companies in the US economy, stole global headlines after it barrelled past its pre-financial crisis high on Tuesday to close nearly 90 points above its previous closing high on October 9, 2007.
Although traders had difficulties in finding a single catalyst for the surging US stocks, they said recent positive US economic data, a lack of concern about Europe, and continued momentum in global markets were all behind the lift.
Australian shares responded by jumping 41.4 points, or 0.8 per cent, to 5116.8 points, the highest close since September 1, 2008.
They were given a boost by Bureau of Statistics figures showing Australia's economy grew 0.6 per cent in the December quarter, and 3.1 per cent for the year.
Citi senior economist Josh Williamson said although the economic growth figures matched the market's expectations, the underlying results "showed a fairly soft profile for growth".
"Most measures of consumption were fairly weak in the quarter, and if it wasn't for a particularly large, and some would say, abnormal increase in public sector capital investment, GDP would be a lot weaker," he said.
UBS chief economist Scott Haslem said the 3.1 per cent growth for the year was slightly below trend but "certainly a very good result for the economy compared to other advanced economies for 2012".
"But if we think about the more recent data, it does suggest the economy - as expected - did slow in the second half of last year.
"The first half of the year was more a 4 per cent pace, while the second-half of the year was more a 2.5 per cent pace."
Despite the GDP figure, Australia's dollar jumped back above US103¢ to recover from its surprise stumble on Monday when it fell below US101.50¢ in response to a slump in China's property index.
"Let's face it, you look at US equity markets and you cannot be anything other than impressed," Robert Rennie, Westpac chief currency strategist, said.
"The Dow has basically said, 'US sequestration? Don't care. Lack of a stable Italian government? Don't care. Policy hawkishness in China? Don't care," he said.
"If that's the situation we're in then I think the Australian dollar was always going to shrug off what I thought was a disappointing GDP number."
Wingate Asset Management's Chad Padowitz said the momentum in global markets had clearly become "behavioural", but there also seemed to be a clear shift away from relatively expensive fixed-income assets into equities on a global scale.
"There also seems to be an absence of significant concern of Europe or the US," he said.
"And we shouldn't underestimate the very big seasonal impact. Generally between November and February, almost every year, the market tends to have its best returns over that period of time, which might not sound very rational but it's got to do with a range of things.
"There's also a lot of momentum around, people want to get involved ... which is more behavioural than anything else."
Frequently Asked Questions about this Article…
Australian stocks rose after the US Dow Jones Industrial Average reached a record high, with commentators citing recent positive US economic data, a lack of immediate concern about Europe and continued momentum in global markets. The local market jumped 41.4 points (0.8%) to 5,116.8, its highest close since 1 September 2008.
The article reports Australian shares rose 41.4 points, or 0.8%, to close at 5,116.8 points — the highest close since 1 September 2008.
Australia's Bureau of Statistics data showed GDP grew 0.6% in the December quarter and 3.1% for the year. Citi senior economist Josh Williamson said the underlying profile was fairly soft with weak consumption and that a large increase in public sector capital investment helped lift the number. UBS chief economist Scott Haslem said the 3.1% annual result was slightly below trend but still a very good result compared with other advanced economies in 2012.
The Australian dollar rebounded after a surprise dip: it recovered back above US103¢ after falling below US101.50¢ the previous day when China’s property index slumped. Currency strategists noted that strong US equity markets and global momentum helped the Aussie shrug off what some saw as a disappointing GDP number.
Yes. Wingate Asset Management’s Chad Padowitz said there appeared to be a clear shift away from relatively expensive fixed-income assets into equities on a global scale, driven in part by behavioural momentum in markets.
The article highlights behavioural momentum as a key driver: Padowitz noted that between November and February markets often produce their best returns, and that people rush to get involved during that seasonal window, which amplifies momentum-driven moves.
According to market commentators quoted in the article, those issues did not significantly dent the rally. Westpac’s Robert Rennie said the Dow’s strength suggested investors were largely ignoring concerns like US sequestration, political instability in Italy and Chinese policy hawkishness.
The article suggests a few clear takeaways for everyday investors: global equity momentum and positive US data were lifting markets, Australia’s GDP growth was supported by public investment while consumption remained soft, and currency and equity moves can be strongly influenced by behavioural and seasonal factors. These points can help investors understand the drivers behind recent market moves reported in the article.
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