ASX rallies strongly, closes up 1.6pc
The Australian sharemarket shrugged off falling metal and iron ore prices to finish well in the black after the US Federal Reserve sparked another surge in demand for yield last night.
The S&P/ASX 200 index opened 0.6 per cent up, but matched only by Japanese stocks in Asia and with all the hallmarks of a short squeeze the index rose steadily to close 85.5 points, or 1.59 per cent, up at 5468.2 with embattled miners leading the charge.
Most currencies bounced against the US dollar and bond yields fell after the Fed slashed its 2014 growth forecast, continued with tapering its bond buying program, dismissed inflation fears, maintained its optimism that growth would continue to rebound this year and reiterated that rates would stay low for the foreseeable future.
The Australian dollar climbed US0.6� to US94� and government 10-year yields tumbled 8.9 points to 3.648 per cent.
Underscoring high Fed expectations, Westpac economist Elliot Clark noted that US growth would need to average annualised growth of 3.3 per cent through the remainder of 2014 -twice the pace of average domestic demand growth over the past 18 months. If the expected further revisions to March-quarter growth occur, then growth over the next three quarters must average 3.6 per cent annualised, a level last seen a decade ago.
"Expectations have allowed for a disappointing reality to be overlooked in favour of a brighter tomorrow," he said. "The consequence has been greater pressure on households and less reason for firms to invest in the domestic economy. There are definite limits to this approach which, sooner or later, will be found."
In Tokyo the Nikkei index climbed per cent.
The Shanghai composite index ignored the Fed news and was trading one per cent down at the close of the ASX as falling property prices continued to unsettle investors.
Premier Li Keqiang said yesterday that the economy would avoid a hard landing and would rely on "smart and targeted regulation" to aid growth.
Spot iron ore bounced 1.1 per cent to US90.50 a tonne yesterday, but Dalian iron ore futures were down 0.5 per cent today while copper dropped 0.3 per cent to $US6690 a tonne and gold firmed $US6 to $US1278 an ounce.
More to come…
