Sharemarket moves above 5,000 points for the first time since 2008: Economy Roundup

Australian investors have been given a boost of confidence today after the sharemarket rose over 5,000 points, following several days in the US where the Dow Jones has closed above the 11,000-point mark.

The 5,000-point mark has not been reached since the global financial crisis began in September 2008. The rise was fuelled by solid results from Wall Street, along with gains in commodity markets.

“Locally, financial stocks are likely to continue their recent out-performance after the US financial sector was the top performer, up 2.6% after it was boosted by JPMorgan’s very strong result,” IG Markets analyst Ben Potter told Business Spectator.

The benchmark S&P/ASX200 index was up 20 points or 0.41% to 5014.9 at 12.00 AEST, while the Australian dollar opened slightly higher to US93c.

ANZ shares gained 0.7% to $26.08, while Commonwealth Bank shares gained 0.5% to $59.49. NAB rose 1.2% to $28.26, as Westpac also gained 0.5% to $28.35.

In Sydney, CostCo has reportedly been given approval to develop its second store in Auburb, following a lengthy approval process during which several groups voiced their opposition to the move, including the Shopping Centre Association and AMP.

According to News.com.au, planning minister Tony Kelly has said the development has been given “concept plan approval”. Costco has previously said the development would take 12 months to build, incidating an opening date of about this time next year.

The problem surrounding the development regarded Costco’s status as a retailer. The company was not authorised to build on the land it had acquired, but intended to get around this by labelling itself as a “bulk goods retailer”, a new category. Opponents said granting the category to the company would consist of anti-competitive behaviour.

Meanwhile, the Bank of Queensland has announced that it is in a far stronger position than it was during the start of the financial crisis, releasing details of a 96% increase in half-year net profit.

The bank announced statutory net profit of $90.9 million for the first half of the 2010 financial year, with normalised cash profit for the six months ending February 28 at $97.2 million, an increase of 15%.

“We have continued to grow our profits, by 15% to $97.2 million, while maintaining our focus on longer-term value and the commitments made to the market in terms of growth, earnings and cost reduction guidance,” managing director David Liddy said in a statement to the Australian Securities Exchange.

“In addition, the bank’s decision to continue lending through the global financial crisis had paid off with lending growth more than two times system… It’s pleasing to note early signs of success in our small-to-medium enterprise lending strategy.

Moody’s announces solid outlook for Australian banks

Also in the banking sector, rating agency Moody’s has said the outlook is stable for the industry with signs emerging that bad debt provisions are peaking.

In its new Banking System Outlook: Australia report, Moody’s said the good predictions for the banks are due to the “relatively sound prospects for the domestic economy, improved conditions and signs that bad debt provisioning is peaking.”

“The majority of Australian financial institution ratings have not changed and the system remains one of the highest-rated globally,” senior vice president Patrick Winsbury says.

“Bad debt provisions are showing signs of peaking and have remained within our tolerance levels for current bank ratings.”

Macarthur Coal has rejected a revised takeover offer from New Hope Corporation, saying it does not represent an adequate premium. The company has advised its shareholders to vote against the deal worth $950 million, also saying the deal represents no increase in the actual number of shares offered.

In the mining sector, gold and copper group Oz Minerals has said it expects gold production to increase during the period to 2012, with costs expected to decline during this year.

“The upward revision in gold production is due to treatment of higher amounts of gold-only ore included in the 2010 mine plan,” the company said in a statement to the Australian Securities Exchange. “Costs of production were lower on a unit basis due to strong gold by-product credits.”

The firm also said production of both gold and copper from the flagship Prominent Hill mine has exceeded expectations, with gold output expected to increase from a previous prediction of 80,000 ounces to 90,000 ounces to an average of 110,000 ounces to 120,000 ounces during 2010-12.

As reported by The Australian, steel manufacturer BlueScope Steel has eased in opposition towards a proposed $US116 billion joint venture between industry giants BHP Billiton and Rio Tinto.

It is understood BlueScope failed to meet yesterday’s deadline to submit a response to the investigation being conducted by the Australian Competition and Consumer Commission, and instead has opted to continue discussions with the ACCC and proponents of the deal, the report claims.

Also in The Australian, Kerry Strokes has agreed to new controls on WesTrac Holding’s earnings reporting in accordance with a new amendment in the terms of the group’s $3 million merger with the Seven Network.

“One of the key issues was to ensure there was a robust definition of what WesTrac EBITDA should stand for,” Perennial managing director John Murray said. It is understood WesTrac’s EBITDA will exclude “things like one-off profits on the sale of non-trading assets, revaluation gains, the release of significant balance sheet provisions,” Murray said.

US Fed to keep rates low

In the United States, Federal Reserve chairman Ben Bernanke has said in a testimony before a House of Representatives committee that interest rates are set to remain low for quite some time.

“The Federal Open Market Committee has stated clearly that they currently anticipate that very low, extremely low rates will be needed for an extended period,” Bernanke said. “If those conditions cease to hold and we anticipate changes in the outlook then of course we will respond to that.”

However, the Fed has also said in its most recent Beige Book report that economic activity has increased across the country.

“Overall economic activity increased somewhat… across all Federal Reserve districts except St. Louis, which reported ‘softened’ economic conditions,” the Beige Book summary stated.

“While labour markets generally remained weak, some hiring activity was evident, particularly for temporary staff,” it said. “Wage pressure were characterised as minimal or contained.”

In New York, shares managed to record a fifth consecutive day of gains due to better-than-expected corporate results, and data from the Commerce Department showing a rise in retail sales. The Dow Jones Industrial Average closed up 103.69 points, or 0.94%, at 11,123.11.

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