Australian stocks surge after global rally as Trump worries ease

Stocks held on to near-3pc gains after markets reassessed Donald Trump’s victory, as Asia also rebounded.

Wall Street staged a major turnaround overnight. Pic: AP

The Australian sharemarket held onto gains of almost 3 per cent in early afternoon trade, surging back to life after a 1.8 per cent slide yesterday wiped $29 billion from the market.

At 12.15pm (AEDT), the benchmark S & P/ASX 200 index bounced 147.1 points, or 2.85 per cent, to 5,303.7, while the broader All Ordinaries index leapt 149.2 points, or 2.85 per cent, to 5,387.5.

The rise added $46 billion to the local benchmark.

Elsewhere in the region, Japan’s Nikkei 225 has rebounded 6 per cent after lagging its peers yesterday, while the Hong Kong and New Zealand markets have risen 2 per cent.

The turnaround has been driven by a sudden, sharp shift in sentiment on the economic ramifications of Donald Trump’s election victory.

Investors had long fretted about a Trump presidency and the uncertainty it may bring, but despite the surprise result investors have taken the prospect of less banking regulation and swelling infrastructure spending as reasons to buy.

The potential for the US Federal Reserve to hold off on raising rates until next year has also been welcomed by traders.

“The stunning turn in sentiment suggests there is now a consensus building that much of the policy announced during the campaign was a sales pitch rather than a commitment to act,” CMC Markets chief market analyst Michael McCarthy said.

“Investors ignored the potential for damage to international trade and growth prospects and focused on Republican control of both houses of Congress as well as the White House.

“This offers the prospect of reform that could stimulate the US economy.”

IG chief market strategist Chris Weston added investors had taken a glass half-full approach for the time being.

“What we have seen in financial markets has been breathtaking and led by the US fixed income market,” IG chief market strategist Chris Weston said.

“Like many I had been concerned market participants would be worried about Trump’s relationship with the Federal Reserve and a number of their key trade partners (such as China and Japan), but this concern is for another time it seems.

“Right here, right now, traders have viewed the combination of a cut in corporate tax (equating to around 0.5 per cent of GDP), sizeable infrastructure spend (I’ve seen numbers between $US500 billion to $US2 trillion) and a corporate tax repatriation window providing a massive boost to Foreign Direct Investment (FDI).”

The local gains were also driven by the resources sector and the big miners in particular, with iron ore’s surge above $US70 a tonne pushing BHP up almost 10 per cent.

“We have seen (strong) buying in commodities, with incredible gains in iron ore futures (+9 per cent), steel futures (+2.6 per cent) and copper futures (+3.4 per cent),” Mr Weston said.

“US crude has rallied 5.5 per cent from its low and this all means huge gains for Aussie stocks today.”

Despite the current market euphoria, PIMCO chief investment officer Scott Mather said traders should anticipate volatile trade as the full repercussions of the Trump victory are digested.

“Volatility is likely to stay elevated relative to recent levels,” he said.

“At this point, given uncertainties about Trump’s policy agenda, key government leadership positions and likely changes in foreign and trade policy — and world government and market reactions to those shifts — what is unknown about the outlook outstrips what is known.

“We see potential risk of financial asset price pressures from the unwinding of risk parity and volatility-targeting strategies.”

Similar sentiments were echoed by CMC’s Mr McCarthy, who warned of the risk of a near-term pullback.

“Last night’s action may be as good as it gets for markets for some time. Policy uncertainty and populist agendas rarely lead to sustainable economic growth,” he said.

For now, investors are buying into the market with vigour, with the iron ore miners the leading lights after the key Australian export traded near a two-year high overnight.

Fortescue reached a two-and-a-half-year peak in the session and recently traded up 7.8 per cent at $5.825, BHP surged 8.6 per cent to a 14-month high of $24.49 and Rio Tinto soared 8.1 per cent to an 18-month peak of $58.10.

Gold miners went in the opposite direction as the safe haven trade quickly lost favour and the precious metal saw yesterday’s gains wiped.

Newcrest dived 8 per cent, Regis Resources plunged 10 per cent and St Barbara also skidded 10 per cent.

In energy, Santos bounded 3.2 per cent to $3.55, Origin climbed 3.7 per cent to $5.39 and Woodside advanced 2.7 per cent to $28.64.

In finance, the big four largely mirrored the broader market with gains of around 3 per cent.

Westpac’s 3.7 per cent rise led the way, while CBA lagged despite winning 2.9 per cent.

Among other blue chips, Telstra added 0.5 per cent to $4.865, while Qantas lifted 1.4 per cent to $2.97.

Meanwhile, the Australian dollar lifted to US76.6c on the back of steady housing finance numbers. It has seen a volatile 24 hours with a peak above US77.8c and a trough just under US76c.