The domestic focus on declining yields pushed the Australian sharemarket to a fresh 21-month high as investors snapped up high dividend stocks, but miners continued to struggle despite a welcome bout of Australian dollar weakness.
The S&P/ASX 200 index again outperformed the flat lead from Wall Street on 40 per cent surge in volume, closing 25 points, or 0.52 per cent, up at 4835.2 points after some firmer offshore data buoyed the bullish outlook.
Overnight global asset correlations broke down and the US S&P 500 index staged a sharp reversal from its high as the VIX volatility index- often referred to as the fear index – kicked up.
The volatility index is the base used to price options and the spike is an indication that traders were buying downside protection through put options that gave them the right to sell at a higher price if the market dropped.
The 12 per cent plunge in apple offset an increase in the Conference Board leading index and a drop in weekly jobless claims, although analysts cautioned seasonal adjustments and the short holiday weak could have distorted the jobs data.
Having failed to pierce the $US1.06 resistance level last week, the Australian dollar fell 0.8¢ to $US1.0445 and to a seven-month low of 78.10 euro cents as the US dollar rallied against most currencies, except the euro.
ANZ economists said trading desks reported that behind these moves were flows mainly from “accounts of a speculative nature”, as they closed out unprofitable long Aussie positions.
“These positions were originally opened to sell the euro on a pessimistic outlook for the euro zone economy, and to buy the Australian dollar because of its new status as a safe-haven currency,” they said. “As the economic data in the euro zone have surprised to the upside, and as global perceptions of risk have diminished, the two reasons to hold the original positions have become less valid.”
The euro was the biggest gainer after German PMI data improved overnight, although France’s PMI took a sharp turn to a new low of 42.9 points.
“This is bad news for Euro stability. France’s weak economic performance suggests this core country may open a new bigger front on the euro crisis, just when there is the freshest of green shoots coming in the periphery,” Royal Bank of Scotland currency strategist Greg Gibbs said.
“Economic performance like this in France threatens to unravel confidence in one of the biggest bond markets in the region.”
However, the euro has been supported but repatriation flows as some banks prepare for the early repayment of emergency funding provided by the European Central Bank a year ago, with analysts estimating as much as 300 billion euro could be removed from the financial system.
In Tokyo the Nikkei index leapt 2.1 per cent after the yen tumbled to a fresh 20-month low followings its record trade deficit in December.
The Shanghai composite index was off 0.3 per cent at the close of the ASX.
Yesterday spot iron ore climbed US90¢ to $US148.60 a tonne while copper edged up 0.4 per cent to $US8126 a tonne.
Signalling fresh weakness, gold fell $US9 to $US1668 an ounce as the US dollar gained traction against most major currencies.
The broader All Ordinaries index was up 25.1 points, or 0.52 per cent, at 4858.9. On the ASX 24, the March share price index futures contract was 20 points higher at 4801, with 21,450 contracts traded.
IG Markets analyst Stan Shamu said investors had been drawn to high yielding financial stocks.
"It’s all been about the defensive names, particularly the yield plays in the banking sector,” Mr Shamu said.
Commonwealth Bank retested an all time high of $63.70 today before closing at $63.59, up 0.55 per cent for the day.
Westpac closed 1.7 per cent higher at $27.55 and Macquarie was 2.5 per cent higher at $37.99.NAB gained 0.55 per cent to $27.24 while ANZ firmed 0.3 per cent to $26.07.
"With downward pressure in interest rates everyone continues to chase that yield play."
Data released yesterday showed that China’s manufacturing activity had reached a two-year high.
On Wall Street overnight, the Dow Jones Industrial Average gained 0.33 per cent to 13,825.33 points.On the local market womenswear retailer Specialty Fashion Group had soared 27 cents, or 38.57 per cent, to 97 cents.
The owner of the Katies and Millers chains says it expects its first-half profit to nearly triple due to cost savings and improved sales.
Sleep disorder specialist ResMed gained 30 cents, or seven per cent, at $4.58, after posting a 24 per cent increase in its second quarter net income, ahead of market expectations.
Construction giant Leighton Holdings advanced 92 cents to $20.00 after announcing its subsidiary Thiess had won a $175 million maintenance contract with Sydney Water.
In the resources sector, global miner BHP Billiton was six cents weaker at $37.10, and Rio Tinto shed 23 cents to $66.06.
Atlas Iron nudged up 0.5 per cent to $1.575 after meeting expectations with its second quarter production results.
Penrice Soda shares were flat as chairman David Trebeck launched an angry attack on dissident shareholder London City Equities (LCE) after he survived Australia’s first two strikes board spill meeting.
National turnover was 1.9 billion shares worth $6.68 billion, with 541 stocks up, 456 down and 346 unchanged.