Wary investors await US debt strategy

THE sharemarket closed firmer amid optimism about the US tackling its deficit problems but underperformed compared with offshore leads out of America and Europe.

By InvestSMART · 21 Nov 2012

By InvestSMART ·
21 Nov 2012

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THE sharemarket closed firmer amid optimism about the US tackling its deficit problems but underperformed compared with offshore leads out of America and Europe.

At the close, the benchmark S&P/ASX 200 Index was up 24.3 points, or 0.56 per cent, at 4385.7, while the broader All Ordinaries rose 24.9 points, or 0.57 per cent, to 4,407.5.

CMC Markets trader Ben Taylor said he thought investors were wary about how close US politicians were to resolving the country's deficit problems.

"The equity market seemed to be calling the fiscal cliff situation almost resolved, but I wouldn't be surprised to see a bit of a fall leading into Thanksgiving (on Thursday)," Mr Taylor said. "The US were up 2 per cent, we are only up 0.6 and the bond market isn't really buying it, suggesting they're taking a bit more of a cautious view."

The fiscal cliff refers to a looming US budget deadline, with tax measures and government spending cuts due to come in from January unless politicians can agree on a long-term debt reduction plan.

Mr Taylor said he thought some of the volatility this week involved traders buying stocks to cover short positions - stocks they had sold believing prices would fall.

"Quite a number of people with short positions were getting a little bit worried that the market looked like it could jump and I think this is really short covering pushing this market higher," Mr Taylor said.

One example was Origin Energy, whose shares were punished less than a fortnight ago, sinking to four-year lows amid a profit downgrade and debt worries. Yesterday they leapt more than 3 per cent for the second consecutive day, closing 33? higher at $10.58.

Mining stocks were the best performers, rising more than 1.3 per cent, which market watchers believe have been oversold on the fiscal cliff concerns.

BHP Billiton was 33? higher at $33.58, while Rio Tinto rose 77? to $57.48. The biggest gold company on the bourse, Newcrest Mining, climbed 24? to $25.24.

Shares in engineering firm Monadelphous shot up after it bucked the trend of other mining services companies. The company, which is also exposed to the infrastructure sector, said it expected its first-half sales revenue to grow by 40 per cent due to record levels of new construction work. The shares closed up $1.24, or 6.12 per cent, at $21.50, but are still well below the $24-plus levels of April.

National turnover was 1.3 billion securities worth $3.4 billion.

Meanwhile, the Australian dollar gained ground on more positive sentiment around Europe and the US. Late yesterday the currency was trading at US104.14?, up from Monday's close of 103.67?.

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Frequently Asked Questions about this Article…

What drove the ASX market higher on the day covered in the article?

The S&P/ASX 200 rose 24.3 points (0.56%) to 4,385.7 and the All Ordinaries gained 24.9 points (0.57%) to 4,407.5 as investors reacted to optimism about the US addressing its budget problems. Short covering—traders buying stocks to close short positions—also helped push prices up, while mining stocks led gains after being seen as oversold amid fiscal-cliff concerns.

What is the 'fiscal cliff' and why does it matter to everyday investors?

The fiscal cliff refers to a looming US budget deadline when automatic tax increases and spending cuts could take effect unless politicians agree on a long‑term debt reduction plan. For investors, uncertainty about that outcome can increase market volatility, affect global sentiment, and influence sectors tied to economic growth such as mining and resources.

How did mining stocks perform and why were they important in the session?

Mining stocks were the best performers, rising more than 1.3% overall. Market watchers said they may have been oversold due to fiscal‑cliff worries, so the bounce reflected a recovery in risk appetite. Major resource names quoted in the article included BHP Billiton at $33.58, Rio Tinto at $57.48 and Newcrest Mining at $25.24.

Why did Origin Energy shares jump after recent weakness?

Origin Energy had fallen to four‑year lows after a profit downgrade and concerns about debt, but the article says its shares leapt for a second straight day—rising more than 3%—suggesting short covering and improving sentiment helped the stock recover some ground.

What happened with Monadelphous and what does that mean for investors in engineering and construction stocks?

Monadelphous bucked the trend among some mining services stocks after saying it expects first‑half sales revenue to grow about 40% due to record levels of new construction work. Its shares closed up $1.24 (about 6.12%) at $21.50. For investors, company‑specific wins like strong contract pipelines can lead to outsized gains even when broader sector sentiment is mixed.

How were trading volumes and what does that indicate for market activity?

National turnover was 1.3 billion securities worth $3.4 billion. Higher turnover can indicate active participation and conviction behind moves; in this case it accompanied a market lift driven by cautious optimism and some short covering.

How did currency moves factor into the market picture?

The Australian dollar gained on more positive sentiment around Europe and the US, trading at about US104.14 cents, up from Monday's close of 103.67 cents. Currency strength can affect exporters, miners and companies with overseas costs or revenues, so investors often watch the AUD in tandem with equity moves.

Should everyday investors react to short‑term moves tied to US political developments?

The article highlights that markets were cautious about how close US politicians were to resolving deficit issues, and that short covering helped lift prices. Everyday investors should be aware that political events can drive near‑term volatility; however, any reaction should be guided by individual investment goals and time horizons rather than headline‑driven short‑term trading.