value buying pushes the asx 200 up 0 9 per cent ahead of the budget 1413402015

Australian stocks closed on a bullish note on Tuesday with investors expecting a business friendly federal budget later during the day. Mining stocks as well as retail were bid up in yesterday’s trading, as value hunters looked for opportunities in the aftermath of the sell-off during the previous week. The local market shrugged off an overnight bearish close on Wall Street and a continuing global sell-off in bonds.

"Everyone got a bit over-analytical last week," said Morgans private client adviser Alistair McCorquodale, as quoted by The Sydney Morning Herald. "We're in a low interest rate environment and we're coming off a pretty ordinary week last week. Commodity prices are stabilising and we're seeing a bit more certainty. The risk comes out of the market and people become more comfortable entering and buying."

Indices and sectors

The benchmark S&P/ASX 200 on Tuesday rose 49.5 points, or 0.9 per cent, and closed at 5,674.7, while the broader All Ordinaries index was up 45.5 points, or 0.8 per cent, at 5,673.1.

The best gaining sectors were materials (+1.69 per cent), information technology (+1.65 per cent), consumer staples (+1.34 per cent) and industrials (+1.04 per cent). Healthcare (-0.35 per cent) was the only losing sector.

Stocks

Mining stocks helped push gains in the materials sector. BHP Billiton Limited (ASX:BHP) shot up 2.23 per cent to AU$32.53, Rio Tinto Limited (ASX:RIO) jumped 1.07 per cent to AU$59.25 and Fortescue Metals Group Limited (ASX:FMG) was flat at AU$2.57. Mount Gibson Iron Limited (ASX:MGX) jumped 11.63 per cent to AU$0.240, while BC Iron Limited (ASX:BCI) remained unchanged at AU$0.470. Investor sentiment towards mining stocks changed for the positive after the price of iron ore on Monday shot up to US$62.50 per tonne.

Energy gained 0.23 per cent as a sector. Woodside Petroleum Limited (ASX:WPL) was up 0.03 per cent to AU$34.51, Origin Energy Ltd (ASX:ORG) was up 0.86 per cent to AU$12.88, Oil Search Limited (ASX:OSH) fell 0.64 per cent to AU$7.73 and Santos Ltd (ASX:STO) rose 0.81 per cent to AU$8.66.

With the exception of National Australia Bank Ltd. (ASX:NAB), which fell sharply by 1.87 per cent to AU$34.54, the other major banks did well. Commonwealth Bank of Australia (ASX:CBA) was higher by 0.86 per cent at AU$82.88, Westpac Banking Corp (ASX:WBC) rose 1.07 per cent to AU$34.06 and Australia and New Zealand Banking Group (ASX:ANZ) gained 1.54 per cent at AU$32.41.

Retailers in supermarkets closed mostly higher. Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, gained 0.35 per cent at AU$43.50, Woolworths Limited (ASX:WOW) was up 2.32 per cent at AU$27.77, and Myer Holdings Ltd (ASX:MYR) shot up 3.68 per cent to AU$1.41. However, Caltex Australia Limited (ASX:CTX) bucked the trend and fell 0.85 per cent to AU$32.72.

In telecommunications, with the exception of Telstra Corporation Ltd (ASX:TLS), which rose 0.99 per cent to  AU$6.11, other stocks ended mostly in the red. TPG Telecom Ltd (ASX:TPM) fell 0.11 per cent to AU$8.99, iiNet Limited (ASX:IIN) was unchanged at AU$9.95 and M2 Group Ltd (ASX:MTU) slipped 0.18 per cent to AU$11.09.

Airlines had a bullish session yesterday. Qantas Airways Limited (ASX:QAN) surged 7.23 per cent to a seven-year high of AU$3.56, while Virgin Australia Holdings Ltd (ASX:VAH) jumped 2.04 per cent to AU$0.500. Investors rushed to buy Qantas after the company revealed that it expected to save around AU$550 million in fuel costs this year, and more in the next, due to lower oil prices and a successful hedging strategy. Qantas chief Alan Joyce also said the airline is likely to pay down debt by AU$1 billion this year and save costs by another AU$900 million, and stoked expectations that the company could return to the dividend list for the first time since 2009, according to ABC.

Economic news, currency and insight

Home loan lending during March surged 3.8 per cent to a record AU$31.3 billion, a year-on-year jump of 11.7 per cent, with borrowings by investors leading the way. Investor lending, which fell 4 per cent in February, rebounded 6.4 per cent in March, but grew at a phenomenal 20.9 per cent year-on-year rate, according to ABC. In contrast, loans to owner-occupiers were up just 1.3 per cent in March and 3.3 per cent on year.

The federal budget presented yesterday by Treasurer Joe Hockey projected a lower-than-expected deficit for 2015-16 of AU$35.1 billion, but the economy could traverse a “credible trajectory to surplus” if GDP growth levels return to trend.

The budget has AU$5.5 billion worth of tax goodies for smaller business entities. Incorporated businesses with annual sales below AU$2 million received a 1.5 per cent tax cut, but smaller unincorporated businesses, such as sole traders and partnerships, will be entitled to a 5 per cent tax discount subject to a AU$1,000 maximum. Smaller businesses would also be entitled to an immediate tax deduction of all assets, such as new tools or machinery, under AU$20,000.

On the other hand, the budget said that legislation would be introduced to curtail tax avoidance activities of multinational corporations with global revenues above AU$1 billion a year, and raise penalties for such conduct. "I think the budget we've seen tonight is a responsible budget," said Tax Institute President Steven Healy. "It's all about the under twos and over ones really — if you're the under two (million) you're the winner, so small business tonight is the big winner."

Overseas businesses supplying digital products and services to Australians will be subjected to GST from July 1, 2017. Popularly known as “the Netflix tax,” this measure could raise about AU$350 million for the states in the first two years after it is implemented.

The budget earmarked AU$3.5 billion over five years towards boosting access to child care, a measure designed to help parents of young children. Families earning AU$65,000 or less will get 85 per cent of their child care fees subsidiised. However, that subsidy will reduce to 50 per cent for families earning AU$170,000 or more.

People from overseas coming to Australia on a working holiday will no longer be eligible for the AU$18,000 tax free threshold, and instead have to pay tax at 32.5 per cent on every dollar they earn up to AU$80,000, according to ABC.

The budget hopes to save AU$2.4 billion by adjusting the thresholds for assets tests on pensioners. While previously singles aged more than 65 years with assets of less than AU$775,000 (excluding the family home) were eligible to claim a part pension, the new limit is now only AU$550,000. According to ABC, the move will benefit 172,000 pensioners at the lower end of the pension scale, but 81,000 pensioners will no longer be able to claim a part pension.

On Wall Street, stocks ended lower on Tuesday, led by a global sell-off in bonds with the additional fear of an impending federal interest rate hike, according to Reuters. The Dow Jones industrial average fell 36.94 points, or 0.2 percent, to end at 18,068.23. The S&P 500 lost 6.21 points, or 0.29 percent, to finish at 2,099.12 and the Nasdaq Composite dropped 17.38 points, or 0.35 percent, to 4,976.19.

The Australian dollar was boosted by the lower-than-expected budgetary deficit of AU$35.1 billion announced by Treasurer Joe Hockey, according to Business Spectator. At 07:00 this morning (AEST), the Australian dollar was trading at 79.74 US cents, up from 78.90 US cents on Tuesday.

The Australian stock market is likely to open lower today given that at 6.40 am (AEST) today, the June ASX SPI200 Index (AP) Futures was down by 17 points at 5,654.