Wall Street surge fuels optimism
Australian stocks soared higher and the dollar rebounded from Monday's surprise dip after the US Dow Jones Industrial Average hit a record high on Tuesday night.
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 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."