australian stocks power ahead on higher iron ore prices and a bidding war in telecom 1342402015

Australian stocks surged higher Monday, fuelled by gains in commodity prices of iron ore that boosted mining stocks, as well as M&A activity in the telecommunications sector. The benchmark S&P/ASX 200 index soared to its best closing in seven years, and appears positioned to demolish the infamous resistance at the 6,000 level.

In market action, the S&P/ASX 200 made no secret of its bullish intentions and was surging higher right from the open. Barring half-hearted corrections, the index kept intact nearly all of the day’s gains and, in a bullish signal, closed just a whisker lower than the day’s best level of 5985.60.

Indices and sectors

The benchmark S&P/ASX 200 on Monday gained 49.4 points, or 0.8 per cent, and closed at 5,982.7, while the broader All Ordinaries index was up 48 points, or 0.8 per cent, at 5,954.8.

Except information technology (-0.39 per cent), all other sectors ended in the black. The top gaining sectors on the day were materials (+1.62 per cent), energy (+1.61 per cent), consumer discretionary (+1.17 per cent), consumer staples (+1.12 per cent) and utilities (+1.12 per cent).

Stocks

Mining stocks bolted ahead in yesterday’s trading, in line with another jump in iron ore prices. BHP Billiton Limited (ASX:BHP) rose 1.62 per cent to AU$32.57, Rio Tinto Limited (ASX:RIO) zoomed 3.43 per cent to AU$59.77, while Fortescue Metals Group Limited (ASX:FMG) gained a whopping 16.29 per cent to AU$2.57 to become the top gainer on the S&P/ASX 200. BC Iron Limited (ASX:BCI) shot up 26.19 per cent to AU$0.53.

At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at US$58.70 a tonne, up 3 per cent from its prior close of US$57.00 a tonne, according to Perth Now. Short-sellers appear to have been trapped in futures trading of the steelmaking ingredient, which has now had eight consecutive sessions of gains, and is within kissing distance of the psychological US$60 mark.

BHP Billiton Limited (ASX:BHP) disclosed that it was embroiled in a AU$522 million dispute with Australian tax authorities after the country’s lawmakers scrutinised its practice of using Singapore as a marketing hub that substantially reduced overall tax liability, according to FT.com.

In the energy sector, which shared the honours with materials as the best performing sector yesterday, Woodside Petroleum Limited (ASX:WPL) was up 1.38 per cent to AU$35.89, Santos Ltd (ASX:STO) vaulted 4.38 per cent to AU$8.35, Oil Search Limited (ASX:OSH) was up 1.32 per cent to AU$8.43 and Origin Energy Ltd (ASX:ORG) rose 1.48 per cent to AU$13.06.

In telecommunications, Telstra Corporation Ltd (ASX:TLS) was up 1.11 per cent to AU$6.39. iiNet Limited (ASX:IIN) leapt 13.16 per cent to AU$9.80 after a bidding war erupted for the company, and was the second best gainer on the S&P/ASX 200. M2 Group Ltd (ASX:MTU) proposed a AU$1.6 billion counteroffer for iiNet, eclipsing the earlier TPG Telecom Ltd (ASX:TPM) bid of AU$1.4 billion, according to The Australian. If the iiNet board confirms that M2’s bid is the superior one, TPG has 72 hours to table a matching or superior bid.

“The process we have put in place has functioned to allow competing, potentially superior offers to be put to the company,” said iiNet chairman Michael Smith. “While we will now need to spend some time working through the process, we are confident that the final result will have positive implications for shareholder value.”

M2 chief executive Geoff Horth claimed his company’s stock-plus-cash offer was superior to that of TPG’s all-cash bid as it allowed iiNet shareholders to participate in future synergies in the merged corporation, as well as to defer capital gains tax. “That, in our view, is a superior proposal to TPG’s offer,” he said. “And frankly, to be part of a larger and very relevant telco … with significantly expanded market capitalisation and relevance, we think it is something that iiNet shareholders will value.”

TPG Telecom Ltd (ASX:TPM) slumped 6.15 per cent to AU$9.01, and was the second biggest loser on the S&P/ASX 200. M2 Group Ltd (ASX:MTU) was the third largest loser, falling 5.38 per cent to AU$10.90.

The big banks closed higher except for Australia and New Zealand Banking Group (ASX:ANZ) which fell 0.39 per cent to AU$35.58. Westpac Banking Corp (ASX:WBC) was up 1.12 per cent to AU$38.85, Commonwealth Bank of Australia (ASX:CBA) gained 0.67 per cent to AU$92.72 and National Australia Bank Ltd. (ASX:NAB) was up 1.00 per cent to AU$38.45.

In retailers, Woolworths Limited (ASX:WOW) rose 1.11 per cent to close at AU$29.23, Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, gained 1.27 per cent to AU$43.17, Myer Holdings Ltd (ASX:MYR) was unchanged at AU$1.33 and Caltex Australia Limited (ASX:CTX) jumped 1.27 per cent to AU$35.95.

Economic news, currency and insight

The latest Moody’s Housing Affordability Measure shows that on a national basis falling interest rates and stability in real estate prices have helped reduce mortgage liabilities for homeowners. The survey revealed Brisbane homeowners now have to set apart less of their monthly income on mortgage payments, but on the other hand, Sydney and Melbourne home owners face the brunt of falling affordability because of rising property prices. In terms of percentage of income required for monthly mortgage payments, the rankings of the index were: Sydney (35.1 per cent), Melbourne (28.2 per cent), Brisbane (23.4 per cent), Adelaide (22.1 per cent) and Perth (21.9 per cent), according to news.com.au.

With an RBA meeting due next week, the market is eagerly looking forward to examine a speech by Governor Glenn Stevens scheduled this morning at a Sydney banking and wealth summit.

On Wall Street, stocks ended lower after large losses in biotech shares which took the NASDAQ Biotech index down by 4.1 per cent, its biggest daily percentage loss since March 25, according to Reuters. The S&P Healthcare Index fell 1.8 per cent and was the largest loser on the S&P 500 index. The Dow Jones Industrial Average fell 42.17 points, or 0.23 percent, to 18,037.97, the S&P 500 lost 8.77 points, or 0.41 percent, to 2,108.92 and the Nasdaq Composite dropped 31.84 points, or 0.63 percent, to 5,060.25.

The Australian dollar has shown strength following the rise in iron ore prices, as well as weakness in the US dollar following softer than expected US economic data, and speculation surrounding the outcome of the US Fed meeting this week. At 07:00 this morning (AEST), the Australian dollar was trading at 78.57 US cents, up from 78.06 US cents on Monday, according to the Business Spectator.

The Australian stock market is likely to open flat today given that at 06:45 this morning (AEST), the June ASX SPI200 Index (AP) Futures was trading up by just five points at 5,977.0.