The Australian sharemarket jumped to a five year high after the US Federal Reserve shocked markets by maintaining its quantitative easing program, sending global borrowing costs sharply lower.
The Fed cited ongoing US growth uncertainty and mounting fiscal concerns from US debt ceiling negotiations as the reasons for maintaining a policy viewed by markets as “money printing”.
Following the knee-jerk surge in global assets against the US dollar, the S&P/ASX 200 index climbed 57.4 points, or 1.1 per cent, to5295.5 on a surge in volume after the Fed backed away from following through on its hints that the $US85 billion bond buying program would be tapered.
However, on the downside, the decision renewed pressure on domestic exporters as the Australian dollar surged 1.4¢ to US95.20¢, almost 7 per cent off its low this year.
Gold leapt 5 per cent to $US1365 an ounce and copper jumped 1.7 per cent to $US7300 a tonne as the fear of prolonged Fed “money printing” sparked a surge in market volatility and the wholesale retreat from the US dollar.
Global benchmark 10-year yields fell points to per cent, while Australian 10-years slumped 19.2 points to 3.87 per cent.
Equity markets rallied on the news, but gains were capped by the weak outlook behind the Fed decision which flies in the face of the bullish earnings outlook punted by analysts and brokers.
In his press conference, chairman Ben Bernanke said that if the economic recovery evolved as expected, then tapering “could begin later this year”, but he stressed there was no fixed timetable for tapering and it was very data-dependent.
“For markets the Fed has rendered communication more opaque but has likely given the new chairman greater flexibility,” ANZ strategist Kerry Duce said.
A further concern is the looming US debt ceiling negotiations and fiscal cutbacks Republican leaders appear intent on extracting for any increase in debt.
HSBC chief US economist Kevin Logan said he expected to start tapering after its December meeting.
“At that time, fiscal policy risks, which appear to have played a part in staying the Committee’s hand on tapering at this time, should be resolved, and we think the policymakers should have enough evidence by then of a modest pickup in economic growth and a rebound in the inflation rate closer to its 2.0% medium-term target,’ he said.
Asian markets pared heavy losses incurred since May, with Indonesia’s Jakarta composite index soaring 7 per cent at the opening, before dropping back to a 4.5 per cent gain, while India’s BSE senses index jumped 2.5 per cent.
In Tokyo the Nikkei index climbed 1.5 per cent. Chinese markets were closed for a public holiday.
Lonsec client adviser Michael Heffernan said the decision to delay tapering had directly contributed to a positive local sharemarket reaction.
"It’s the American decision which has been the dominant factor,” Mr Heffernan said.
All sectors of the sharemarket finished strongly, with the exception of defensive consumer staples.Investors now have a greater appetite for risk.
This contributed to a strong performance among resources stocks while gold companies benefitted from the Fed decision and its negative effect on the US dollar.
The ASX/200, recorded its highest close since June 26, 2008 and the All Ordinaries index reached it’s the highest close since June 30, 2008.
Mining giant BHP Billiton rose 59 cents to $36.68, Rio Tinto was up $1.93 to $63.63 and goldminer Newcrest Mining rose 95 cents, or 7.93 per cent, to $12.93.
Consumer staple Wesfarmers was 14 cents lower at $41.40.
In company news, retailer Billabong said it had appointed Neil Fiske as its new chief executive and struck a long-term refinancing deal.
Its shares rose 2.5 cents, or 5.56, to 47.5 cents.
Meanwhile, Brickworks nearly doubled its full year profit on the back of stronger earnings out of its building products group, pointing to a recovery in Australia’s housing sector.
Its shares had climbed 35 cents to $12.85.
The broader All Ordinaries index was up 58.2 points, or 1.1 per cent, at 5288.6.
The December share price index futures contract was 54 points higher at 5301, with 30,854 contracts traded.National turnover was two billion securities worth $6.5 billion.