Diminishing fears of rising global borrowing costs and bullish broker upgrades for metal prices and miners sparked a heavy-volume rally on the Australian sharemarket today.
Following a record high on Wall Street the S&P/ASX 200 index opened 0.9 per cent up but lost momentum on weak Chinese data before spiking to close 49.8 points, or 0.91 per cent, up at 5498.2 points.
There was no obvious catalyst as the US VIX volatility “fear” index slumped shortly before the US open last night, providing the catalyst to drive the S&P500 index climbed to a record high.
Markets did act positively to comments from European Central Bank board member Ewald Nowotny that one interest rate cut was unlikely to be sufficient to revive inflation in the eurozone and that several stimulus measures were preferable.
Chinese total financing of 1.55 trillion yuan fell by a third in April but beat forecasts, while bank new yuan loans fell short of forecasts. Factory output expanded 8.7 percent last month compared with the median estimate for 8.9 percent growth, while retail sales rose 11.9 percent in April, compared with the forecast for 12.2 percent growth
Westpac senior economist Huw Mckay said weak growth in Chinese credit would hinder real activity deep into this calendar year.
The Shanghai composite index was off 0.4 per cent at the close of the ASX despite the People’s Bank of China loosening interbank funding when it allowed repo deals to mature without mopping up the funds with new cashing draining deals.
“Chinese authorities are currently engaged in a fine balancing act aimed at simultaneously keeping GDP growth at respectable levels and reining in the excesses of the country’s shadow banking system,” Patersons economist Tony Farnham said.
In Tokyo the Nikkei index jumped 1.8 per cent as the yen lost ground against the US dollar.
The Australian dollar traded in a tight range but slipped US0.3¢ to US93.40¢ after the weak Chinese data, while government 10-year yields rose 1.6 points to 3.849 per cent.
Gold firmed $US4 to $US1294 and copper pared its 2 per cent overnight rally, sliding 0.7 per cent to $US 6830 a tonne. Yesterday spot iron ore rose 0.3 per cent to $US103 a tonne while Dalian iron ore futures jumped 1.5 per cent today.
JP Morgan raised its rating on the resources sector to “overweight” from “underweight” overnight and pointed to signs of a rebound in China’s economy, the world’s biggest metals consumer.
CMC Markets chief market analyst Ric Spooner said the local bourse had been boosted by positive leads from overseas markets.
"First and foremost, I think, it was a strong lead from offshore,” he said.
But Mr Spooner said the market pulled back from its intra-day high ahead of tonight’s federal budget, which is expected to outline tough spending cuts and the loss of thousands of jobs in the public service.
Mr Spooner said Chinese economic data released late in the trading session were broadly in line with expectations and did not have much impact upon the local market.
Official data out of China today showed that its industrial output increased by 8.7 per cent year-on-year in April, down from 8.8 per cent a month earlier.
Retail sales rose by 11.9 per cent last month from a year ago, down from an increase of 12.2 per cent in March.
On the local market, in the resources sector, global miner BHP Billiton surged 80 cents to $37.96, Rio Tinto jumped $1.85 to $62.85, and Fortescue Metals firmed eight cents to $4.80.
Mining services and explosives business Orica slumped 85 cents to $21.09 after its half year profit fell nearly 8 per cent, hurt by a slowdown in the mining sector.
Aurora Oil and Gas advanced 23 cents, or 5.82 per cent, to $4.18 after Canada’s Baytex Energy Corp increased its takeover offer for Aurora by 2.4 per cent.
Among the major banks, ANZ lifted 22 cents to $32.90, Commonwealth Bank strengthened 52 cents to $79.90, Westpac gained 24 cents to $35.14, and National Australia Bank added 32 cents to $34.50.
The broader All Ordinaries index was up 46.4 points, or 0.85 per cent, at 5475.4 points.
On the ASX 24, the June share price index futures contract was 51 points higher at 5488 points with 24,032 contracts traded.
National turnover was 1.44 billion securities worth $3.9 billion.