The Australian sharemarket rallied strongly today gaining $22.6 billion in value 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.
CMC Markets analyst Michael McCarthy said all of the lights were turning green for Australian investors this week.
"Not only have we got a supportive Fed and a better US growth outlook, we’ve got strong leads from US sharemarkets,” Mr McCarthy said.
"We’ve also seen industrial metals make gains overnight, including iron ore, and we’ve got a bit of M&A activity in the background and the futures expiry last night and this morning."
The big mining companies performed strongly due to an improvement in the iron ore price.
Rio Tinto rose $1.34 to $59.24, BHP Billiton added $1.15 cents to $36.43 and Fortescue Metals was 20 cents higher at $4.22.
In other news, electronics retailer JB Hi-Fi confirmed it was on track to lift its annual profit by about 10 per cent, despite lowering its sales growth expectations.
Its shares were up 24 cents at $18.97.TV broadcaster Ten had shed two cents to 27 cents after saying its revenue will likely be down by 3.5 - 4.5 per cent.
Rail and ports operator Asciano’s shares were up 32 cents at $5.55 on news it will axe about 500 jobs to help reduce costs by $90 million during the 2014/15 financial year.
The major banks were also higher, with Commonwealth Bank up $1.30 $82.30, National Australia Bank up 58 cents at $33.59, Westpac up 61 cents at $34.45 and ANZ 54 cents firmer at $34.28.
The broader All Ordinaries index was up 82.5 points, or 1.54 per cent, at 5446.4
The September share price index futures contract was 91 points higher at 5428, with 34,938 contracts traded.
National turnover was 2 billion securities worth $6.3 billion.