australian stocks pelt higher by nearly two per cent as fed worries recede 1178332015

Australian stocks roared back with a sharp gain of nearly 2 per cent, taking their cue from the bullish overnight close on Wall Street as apprehensions of a US Fed interest rate hike dissipated.

In market action, the S&P/ASX 200 embarked on a bullish uptrend from the word go, and ended just a shade lower than its best level for the day of 5,953.30.

Indices and sectors

The benchmark S&P/ASX 200 rose 108.5 points, or 1.8 per cent, and closed at 5,950.8, while the broader All Ordinaries index was up 104.5 points, or 1.8 per cent, at 5,912.5.

The significant gaining sectors were real estate investment trusts (+3.14 per cent), financials (+2.34 per cent), utilities (+1.94 per cent), telecommunications (+1.67 per cent) and materials (+1.54 per cent). Information technology (-0.26 per cent) was the only losing sector for the day.

Stocks

The big banks stole the show in yesterday’s trading. Commonwealth Bank of Australia (ASX:CBA) went up a huge 2.38 per cent to AU$95.61, Westpac Banking Corp (ASX:WBC) was up 2.66 per cent to AU$39.71, Australia and New Zealand Banking Group (ASX:ANZ) gained 1.98 per cent to AU$36.63 and National Australia Bank Ltd. (ASX:NAB) was up 2.24 per cent to AU$39.24.

The first three named banks all closed at record highs, according to The Sydney Morning Herald. "No doubt Australia's big four bank stocks are now all looking expensive on a traditional valuation model, but despite this they still represent relative value," Contango Asset Management chief investment officer George Boubouras said, as quoted by the paper. "Given they are great businesses with reliable dividend yields, the high prices for bank stocks are justifiable compared to the income available from bonds or term deposits."

Despite continuing woes on the iron ore price, miners were generally bid up yesterday. BHP Billiton Limited (ASX:BHP) closed higher by 1.26 per cent at AU$30.58, Rio Tinto Limited (ASX:RIO) gained 0.14 per cent to AU$58.30, and Fortescue Metals Group Limited (ASX:FMG) jumped 6.70 per cent to AU$1.99. However, Atlas Iron Limited (ASX:AGO) shed 6.67 per cent to AU$0.140, Mount Gibson Iron Limited (ASX:MGX) was down 2.22 per cent to AU$0.220 and BC Iron Limited (ASX:BCI) remained unchanged at AU$0.405. Iron ore prices are down to their worst levels since the first half of 2009. Spot delivery benchmark iron ore at Tianjin in China last traded at US$54.50 per tonne, according to The Australian.

Energy stocks closed in the green across-the-board. Woodside Petroleum Limited (ASX:WPL) jumped 1.29 per cent to AU$35.31, Origin Energy Ltd (ASX:ORG) was up 1.05 per cent to AU$11.60, Oil Search Limited (ASX:OSH) moved up just a tad by 0.13 per cent to AU$7.57, and Santos Ltd (ASX:STO) finished higher by 1.27 per cent at AU$7.15.

With the exception of Myer Holdings Ltd (ASX:MYR), which plunged over 10 per cent to AU$1.38 and OrotonGroup Limited (ASX:ORL), down 9.96 per cent to AU$2.44, other stocks in the retail space ended in positive territory. Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, was up 0.34 per cent at AU$44.05, Woolworths Limited (ASX:WOW) shot up 1.19 per cent to AU$29.01 and Caltex Australia Limited (ASX:CTX) was up a solid 1.91 per cent at AU$37.41. 

Myer Holdings Ltd (ASX:MYR) reported a profit of AU$62.2 million for the six months ended January 24, down 23 per cent from AU$80.8 million, as sales turned weak and costs such as on refurbishments and other investments rose. The company downgraded its guidance for the full year profit to the range AU$75 million-AU$80 million, substantially lower than market expectations of a AU$90 million profit and the previous year’s profit of AU$98.5 million. Newly anointed CEO Richard Umbers vowed to overhaul the operations and win back customers according to Sky News. A report in the Wall Street Journal said the department store chain was hit by competition from online retailers and the phenomenon of ‘showrooming’ – people coming into Myer stores, trying something on, then buying it online from someone else, according to Brad King, a portfolio manager at Melbourne-based Armytage Private.

Shares in OrotonGroup Limited (ASX:ORL) collapsed nearly 10 per cent after the company declared highly disappointing half yearly results that showed earnings fell over 57 per cent, and cut its dividend by nearly half, according to The Australian.

Amongst telecom and internet stocks, Telstra Corporation Ltd (ASX:TLS) zoomed 1.75 per cent to AU$6.41, TPG Telecom Ltd (ASX:TPM) was up over 2 per cent to AU$8.84, iiNet Limited (ASX:IIN) moved up 0.34 per cent to AU$8.89, and Macquarie Telecom Group Ltd. (ASX:MAQ) was up a solid 4.17 per cent at AU$5.00. In breaking news today, BT Investment Management, which is iiNet's biggest institutional shareholder, with 5.7 per cent of the group's shares, has raised serious objections to the AU$1.4 billion bid for the company by TPG Telecom. "The prize of significant synergies needs to be shared with iiNet shareholders; the current bid does not reflect that," said Paul Hannan, fund manager, as quoted by The Sydney Morning Herald. "We are staggered the board and its advisers doesn't see this and didn't argue stronger for a scrip-based alternative. To have dealt these strategic assets for a bog standard 25 per cent premium is absurd."

Plasma product and vaccine exporter CSL Limited (ASX:CSL) shot up 1.7 per cent to an all-time high of AU$95.22, and to the exalted position of being the priciest stock on the ASX currently.

Economic news, currency and insight

The National Security Committee has given permission for Australia to invest as much as AU$3 billion to join in the new Chinese-led development bank. If the federal government decides to join the bank, it would be in company with Britain, Germany, France and Italy, but at odds with the US. The bank intends to focus on financing infrastructure projects throughout Asia, according to Sky News.

According to a paper released by the Reserve Bank of Australia yesterday, the cost of funds raised by Australian banks declining but their profitability is under pressure due to mounting competition. “Over the past few years, banks’ funding and lending rates have moved together closely, with declines in funding costs contributing to declines in lending rates,” the RBA paper said, as per The Australian. “Over 2014, competition in lending markets resulted in the overall outstanding lending rate falling a little more than funding costs, with the spread between the two narrowing by about 10 basis points.”

Wall Street closed marginally lower. The Dow Jones Industrial Average fell 117 points, or 0.7 per cent, to 17,959, while the S&P 500 index declined 10 points, or 0.5 per cent, to 2,089. However, the Nasdaq Composite Index bucked the trend to rise 10 points, or 0.2 per cent, to 4,992.

At 07:00 this morning, the Australian dollar was trading at 76.28 US cents down from 77.30 US cents yesterday and the peak of 78.46 US cents reached yesterday morning, says the Australian.

The Australian stock market is likely to open lower today given that the April ASX SPI200 Index (AP) Futures was down 11 points at 5,957.00 at 06:39 this morning (AEDT).