Global economies were given a boost of optimism overnight as the Dow Jones Industrial Average moved above the 10,000 point market for the first time since October 2008, when it plunged after the onset of the global financial crisis.
Local stocks have followed suit after the rise, which was prompted by a number of better-than-expected corporate results and higher retail sales.
Analysts said the 10,000 point mark is an important milestone for investors, with many now believing the results, alongside optimistic comments from the Federal Reserve and expectations for lower unemployment, could be the beginning of a recovery.
“Dow 10,000 may be largely psychological, but with tremendous levels of cash on the sidelines this may still be a call to action for investors,” Mayflower Advisors managing partner Lawrence Glazer told Reuters.
“It means we’ve come a long ways in a hurry,” Wells Fargo Advisors senior equity market strategist Scott Marcouiller said. “It is a psychological positive, but it’s also a logical spot now for us to take a pause.”
The results were prompted by announcements from JPMorgan Chase & Co and chip manufacturer Intel, with investors now expecting a healthy reporting season.
“Intel and JPMorgan are two major bellwethers, so if the most significant semiconductor company and the most significant bank are blowing out their numbers and guiding higher, that has a positive implication for the entire economy,” Federated Investors chief equity market strategist Philip Orlando told Bloomberg.
The Dow Jones industrial average rose 144.80 points, or 1.47%, to 10,015.86, now 52.9% higher than the 12-year lows in early March. The Standard & Poor’s 500 Index gained 18.83 points, or 1.75%, to 1,092.02, as the Government announced retail sales, except auto purchases, rose for a second consecutive month.
Glenn Stevens flags more rate rises
The optimism continued back home, with Reserve Bank of Australia governor Glenn Stevens saying in a speech that interest rates must be moved towards a more normal level.
The announcement comes after the RBA decided last week that the official cash rate should be raised by 25 basis points to 3.25% in a surprising decision that made Australia the first G20 country to raise interest rates since the financial crisis began.
“We have said that, over time, interest rates will need to be adjusted towards a more normal setting as the economy recovers,” Stevens said in a speech, also saying that risks against the economy are now beginning to disappear.
Analysts suggest the comments indicate a further rate rise next month, with more to come during the first six months of 2010.
His comments come as the Melbourne Institute revealed inflationary expectations remain unchanged during October at 3.5%, with a consistent 17% expecting inflation to remain within the RBA’s target 2-3%.
“These figures are consistent with the trend of relatively positive economic data observed in the last couple of months,” Melbourne Institute research fellow Dr Sam Tsiaplias said in a statement.
The Australian sharemarket opened higher after the gains in the US with investors now optimistic about the future of the global economy. The benchmark S&P/ASX200 index was up 50.3 points or 1.04% to 4881.4 at 12.00 AEST, while the Australian dollar remained steady at US91c.
ANZ shares gained 1.2% to $25.09, as Commonwealth Bank shares gained 1.6% to $55.84. NAB shares gained 0.4% as Westpac rose 1.3% to $27.16.
Commonwealth Bank to pay extra taxes
The Commonwealth Bank has said it will have to pay taxes of about $210 million following a court decision in New Zealand, with the move possibly lowering its Tier 1 capital by six basis points.
The bank says it is not reviewing its position after the court ruled that Westpac had undertaken structured finance transactions in an attempt to avoid tax. ANZ said it is also reviewing the ruling.
The Bank of Queensland has announced a 2008-09 net profit increase of 2% to $141.1 million from the $138.7 million recorded during the previous financial year, but expects more damage from bad debts.
“Competition is fierce and while smaller financial service providers like BOQ are operating on an uneven playing field, compared to the majors, BOQ remains a real alternative to the major banks,” managing director David Liddy said in a statement.
“We expect bad debts to peak in the coming financial year, but we have increased our general reserve for credit losses to account for this and our losses to date are still tracking well below our larger competitors.”
Adultshop knocks back Sexyland offer
Erotic retailer adultshop.com has knocked back a $7.9 million takeover bid from adult chain Sexyland claiming it undervalues the company’s assets.
Adultshop managing director Malcolm Day told The Australian the offer was not high enough regarding their own shares, but no decision on behalf of other shareholders has been made.
The board has advised its shareholders to take no action until the company has sent out a statement, while Sexyland is urging Adultshop shareholders to take up entitlements in the company’s rights issue to prevent the directors from gaining a shareholding of over 50%.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
