Risk appetite has reignited after the US Federal Reserve chose to keep its asset buying program at full throttle, shocking investors across the globe.
Wall Street surged to a record high following the Fed decision, sparking strong rallies on global sharemarkets, while the US dollar and Treasury yields went into a tailspin.
The best and worst performers on the ASX200 today. All the top performers are gold miners.
Australia’s sharemarket soared to fresh five year highs, with the benchmark S&P/ASX 200 Index rising 57.36 points, or 1.1 per cent, to 5295.5. The broader All Ordinaries finished 58.24 points, or 1.1 per cent, higher at 5288.6.
As the greenback weakened, the Australian dollar, traditionally considered a risk asset, punched through 95 US cents, while gold jumped more than 4.6 per cent to $US1364.11 an ounce.
Investors were expecting the Fed to start easing $US10 billion of its $US85 billion monthly stimulus, which would have strengthened the US dollar and push down the price of gold.
But Fed chairman Ben Bernanke said unemployment was still too high and inflation too low to begin any tapering, which economists are tipping it will now begin in December or early next year under Mr Bernanke’s most likely replacement Janet Yellen.
But even then, Ms Yellen, who has been a strong supporter of the stimulus strategy, is expected to slowly unwind the program if she takes the helm.
Gold stocks were therefore the big winners on the ASX, with nine gold miners in the index’s top 10 performing companies. Perseus Mining and St Barbara led the charge, rising 22.5 per cent and 20.2 per cent to 68 cents and 65.5 cents respectively, while Medusa rose 18.5 per cent to $2.43 and Beadell Resources firmed 17.6 per cent to 87 cents.
Among the big iron ore miners BHP Billiton gained 1.6 per cent to $36.68 while Rio Tinto jumped 3.1 per cent to $63.63, respectively as metals prices soared overnight.
St George Bank chief economist Besa Deda said the market had been ‘‘caught’’ by the Fed’s decision.
‘‘The markets had to unwind positions that were centred around the Fed tapering and now the market will focus on key US data as it comes in, but they probably just won’t focus on the labour market as much anymore because Bernanke now seems to be taking a more holistic view,’’ Ms Deda said.
Arab Bank Australia Treasury dealer David Scutt said he was surprised the market held onto its early gains, adding that he expected some profit taking later in the session.
‘‘But look the Fed is probably going to be printing for the rest of this year and into maybe into 2014,’’ Mr Scutt said. ‘‘They want to actively encourage risk assets to go higher. They are going to flood the global markets with liquidity, that means us too, and that will probably mean we will ease our way higher over the course of the rest of the year.’’
However, stocks with large exposure to the US market fell. Packaging company Amcor shed 1.6 per cent $10.60 and QBE Insurance lost 1.4 per cent to 21 cents.
10-year US Treasury yields tumbled 16 basis points to 2.7 per cent, to the delight of India, Indonesia and other emerging markets. A sharp rise in Treasury yields in recent months, which would have continued if the Fed began tapering, has made it harder for emerging economies to pay their debts.
But HSBC chief economist Paul Bloxham cautioned our hard-hit Asian neighbours not to get too caught up in the euphoria.
‘‘The Asian economies need to very focused on taking this opportunity to put in place more reforms to support their medium term growth prospects,’’ Mr Bloxham said.
‘‘The reform agenda has slowed down because there has been cheap liquidity in the world and it’s provided less impetus for these governments to make hard choices. But they are hard choices that need to be made.’’