ASX bursts through 7000 as simulus boosts confidence

Investors added $15bn of value to Australian shares on Wednesday as the S&P/ASX 200 index burst above 7000 points to reach its highest level since the COVID-19 pandemic struck last year.

The ASX 200 surged back past 7000 on Wednesday. Picture: Jeremy Piper

Investors added $15bn of value to Australian shares on Wednesday as the S&P/ASX 200 index burst above 7000 points to reach its highest level since the COVID-19 pandemic struck last year.

After a strong start to the month as Federal Reserve officials reassured investors that US interest rates will stay low despite massive new fiscal stimulus, Australia’s sharemarket re-accelerated on Wednesday with the S&P/ASX 200 rising 48.5 points or 0.7 per cent at 7023.1.

The Australian market is just over 2 per cent away from setting a new record high as global markets continue to set the pace amid sustained fiscal and monetary policy stimulus.

It comes as Wall Street’s S&P 500 hit a fresh record high and the Nasdaq index rose strongly before the highly anticipated US sharemarket listing of cryptocurrency exchange Coinbase later on Wednesday, and Australian consumer confidence has surged to the highest point in almost 11 years.

The Westpac-Melbourne Institute Consumer Confidence index surged 6.2 per cent to 118.8 points in April, the highest point since August 2010 when the economy was at the peak of a mining investment boom and rebounding from the GFC.

“This is an extraordinary result,” , Westpac chief economist Bill Evans said. “(This) continues to signal that the consumer will be the key driver of above-trend growth in 2021.” With the S&P/ASX 200 back up to its highest point since February 24, 2020, it has almost fully recovered from its fastest-ever bear market.

At its depths the COVID shock wiped away 39 per cent of its value in a matter of weeks as it dived from a record high of 7197.2 to a seven-and-a-half year low of 4402.5.

“Last time it was here we were all oblivious to what was about to be unleashed on the world,” said Richard Coppleson, head of institutional sales and trading at Bell Potter.

Mr Coppleson said Wednesday’s rise came amid a “huge” increase in the total daily value of daily trades on the ASX to $7.5bn compared to about $5.5bn in recent days.

“What gave it away was that we saw 82 block trades worth a massive $1.43bn,” he said.

Australian sharemarket gains came as regional markets mostly reacted positively to US gains, which saw the S&P 500 rise 0.3 per cent to a record high of 4141.59 points.

China’s Shanghai Composite rose 0.6 per cent, the Hang Seng rose 1.4 per cent and South Korea’s KOSPI index rose 0.4 per cent, although Japan’s Nikkei 225 fell 0.4 per cent.

The Australian market saw broad gains, led by “growth” stocks in the information technology and healthcare sectors as the nation’s 10-year bond yield fell 6 basis points to 1.75 per cent.

Growth stocks typically trade on higher valuations when bond yields fall.

Some “value” stocks also rose, with CBA and BHP both up 0.7 per cent.

But T. Rowe Price head of Australian equities Randall Jenneke predicted the cyclical rally will peter out in 2021. “In many ways, yesterday’s winners are today’s losers,” he said.

So far in 2021, the MSCI Australia value index has beaten growth by 9 per cent and financials have outperformed healthcare by 16 per cent.

“We know why — inflation — but where are we on this violently swinging pendulum?” Mr Jenneke said. With the initial Pfizer vaccine efficacy data on November 20th prompting a massive outperformance of value stocks, he said it was “critical to think about the inevitable fade of this inflation trade”.

“Calling the timing of one of the strangest economic recoveries I’ve seen can’t be done with precision, but what’s certain is we are relying on the magnitude and duration of further fiscal stimulus,” Mr Jenneke said. “Central banks are out of bullets.”

With consensus economic forecasts predicting dramatic economic expansion in 2021 — including year-on-year growth of 7 per cent in the US, 8.5 per cent for Asia ex-Japan and 5 per cent for Australia, but with the exception of Europe — “this is where the acceleration ends”, Mr Jenneke said.

“If these numbers are right, the cyclical rally will peter out in 2021.

“In the absence of Modern Monetary Theory, I believe we’ll see a short spike in the data in 2021, but the big question is how much of this is already priced in.

“If the inflation trade is a 2021 story, beware the rush of money that will look for sustainable growth on the other side. What was a good trade in November — value — may not be right now.”

But Bell Potter’s Mr Coppleson tipped a new trading range between 6800 and 7200 points for the S&P/ASX 200.

“The market is now trying to move well above 7000 and the record high will be in its sights,” he said.

“The banks are all due to report in the next three weeks and they will be a big part of this rally.”

Earnings reports from US banks including Goldman Sachs, JPMorgan and Wells Fargo were due for release overnight. Australian job figures are due on Thursday, with economists expecting the unemployment rate to have fallen to 5.7 per cent in March from 5.8 per cent in February.

Investors were also keeping an eye on the Nasdaq listing of US-domiciled cryptocurrency exchange, Coinbase, after the price of bitcoin hit a record high of $US65,869.77.

The Australian dollar rose 0.5 per cent to US76.8c.