Australian stocks surge to 19-month high as US fiscal cliff averted

THE sharemarket started 2013 with a bang as US lawmakers agreed a budget deal to avoid the worst of the so-called fiscal cliff that had threatened to derail the world’s biggest economy.

The benchmark S&P/ASX 200 closed up 1.2 per cent at a 19-month high of 4705.9, also after better Chinese manufacturing data helped lift commodity prices overnight.

The value of shares traded was $2.3 billion, a little more than half the 2012 daily average of $4.1 billion, as many brokers and investors remained on holiday.

“This removal of the fiscal cliff threat provides a positive backdrop for Australia,” said Shane Oliver, chief economist and head of investment strategy at AMP Capital Investors. Sharemarkets worldwide will gain from the consequent pick-up in the US economy, alongside improvements in China and Europe, he added in a note to clients.

Australian shares rose 15 per cent in 2012 as a US recovery showed signs of strengthening and China’s economy appeared to rebound from a partially-engineered slowdown. The advance almost erased two straight years of losses for the S&P/ASX 200 driven in large part by concern over Europe’s sovereign-debt crisis.

BHP Billiton rose 2 per cent and Fortescue Metals surged 5.8 per cent today after spot iron ore added 3.9 per cent on Monday. Woodside Petroleum gained 1.5 per c nt following a 1 per cent rise in Nymex crude oil, while Newcrest Mining climbed 3.6 per cent after spot gold advanced 1.2 per cent  on Monday.

Commonwealth Bank of Australia led the major banks with a 0.9 per cent rise, while QBE Insurance increased 3.7 per cent. Traditionally defensive stocks were mixed, with telecommunications firm Telstra up 1.6 per cent, and CSL, a blood-products maker, falling 0.4 per cent.

Wednesday’s S&P/ASX 200 gain, the biggest in five months, capped an 8.5 per cent rally over the past seven weeks. That followed a four-week sell-off from mid-October to mid-November as investors fretted over the looming fiscal cliff in the midst of the U.S. presidential election.

Congress broke a rancorous stalemate by passing legislation that blocked most impending tax increases and postponed spending cuts, largely by raising taxes on upper-income Americans. That ended a tortured drive by Congress to avert the fiscal cliff, a journey that ended up technically breaching the January 1 deadline.

AMP’s Mr Oliver said the removal of the fiscal cliff threat considerably brightened the outlook for both Australia’s economy and sharemarket, at a time when a fading mining boom is widely seen as having dampened the resource-rich country’s prospects.

The S&P/ASX 200 was likely to reach the 5000 level by the end of 2013, resulting in a total return for investors of around 12 per cent this year, the Sydney-based fund manager added.

Related articles

• Stock futures point to ‘fiscal cliff’ relief rally (usatoday.com)
• Shares surge as US steps back from fiscal cliff (abc.net.au)
• Aust shares open higher (news.theage.com.au)
• Australia services sector contracts on consumer caution (craighill.net)