The sharemarket reversed early losses to close higher on Tuesday after morning news of a Republican Party draft bill to repeal and replace Obamacare sparked a 50-point rally in the benchmark index.
The rebound was led by the big four banks and a 1.1 per cent gain in bio-pharmaceutical company CSL, pushing the S&P;/ASX 200 index up 15 points, or 0.3 per cent, to close at 5761.
Westpac climbed 0.8 per cent, NAB 0.7 per cent, and ANZ added 0.5 per cent, while CBA ended the day only marginally higher. Westfield, which fell 1.5 per cent on a broker downgrade, and the major miners, BHP Billiton and Rio Tinto, were the primary drags on the index as most stocks ended the session higher.
The impressive morning bounce looked to have been investors responding positively to any signs of policy progress in Washington after a chaotic start to the new administration under President Donald Trump.
"It's all about reducing political risk," Perpetual head of investment strategy Matt Sherwood said. "Investors hope that Congress can work well with the Republican president.
"The proposed bill would only work at the very margin in improving the US budget balance,"Mr Sherwood said. "It won't change the US growth dynamics, and probably won't on the whole change the trajectory of US earnings, either."
The sharp bounce on the ASX was timed almost perfectly with the breaking news out of Washington.
"Markets probably responded to this by thinking that this is a first step to progress on a number of fronts," Westpac senior international economist Elliott Clarke said. "It reduces the timing uncertainty and hopefully reduces any kind of gridlock, and I think that was really the rationale for why the markets liked it: we are starting to see the ball rolling."
"If they can get this done and through the Congress and signed off by the President, then the focus then changes to tax cuts, regulatory reform, stimulus programs - all which are growth friendly," Mr Sherwood said.
The other major news of the day was the Reserve Bank of Australia in its monthly meeting held its cash rate target steady at 1.5 per cent, surprising no-one on the day. The RBA's accompanying statement did little to dissuade the consensus view that the central bank remains firmly on hold as it balances booming property markets in Sydney and Melbourne - an increasing concern - with a mixed employment picture and sluggish, below-target inflation.
Weighing on the sharemarket were a number of stocks trading ex-dividend, including the likes of Qantas, Medicare Private, Blackmores and Ramsay Health Care.
Stock of the day: Westfield
Shares in global shopping centre owner Westfield lost 1.5 per cent to $8.68 on Tuesday, after Credit Suisse downgraded the company over "frequent disappointments". It's not you; it's me," the Credit Suisse analysts said. "Our recent history with Westfield has been characterised by a plethora of 'outperform' ratings and frequent disappointments, as asset disposals, foreign exchange, invasive developments, technology spend, and intensive retailer remixing have all conspired to cap earnings growth. We had hoped for 2018 to be different. The maths tells us that it still could be – but both history and Westfield's focus on portfolio quality tell a different story." Westfield shares peaked at $11.00 in July last year, but have largely trended down since. Most analysts retain 'buy ratings', despite Westfield's somewhat soft earnings guidance.
Market movers
Aussie spike
The spike higher in the Australian dollar just before the RBA's rates announcement at 2.30pm AEDT raised a few eyebrows among traders. The Aussie suddenly jumped a quarter of a cent to the day's high of US76.25¢ three minutes before the decision, only to retreat just as quickly on the decision to fetch US76.05¢ late in the session. Some traders blamed algorithms, others said the spike was most likely due to an investor taking a punt on a more hawkish RBA statement.
More "macro-pru"
Regulators are "increasingly likely" to lower the speed limit on investment property lending growth from the current 10 per cent, Morgan Stanley analysts argue. The broker says the rhetoric from APRA is getting stronger, with the chairman stating last week that "strong competitive pressures are producing higher rates of lending growth again… we therefore see no room for complacency". That echoes the thoughts of a number of economists following the RBA's statement, where the central bank was seen as a bit more worried about the housing market's strength.
Building activity
In an encouraging signs for the domestic economy, building activity picked up for the first time in five months. The Ai Group and Housing Industry Association Performance of Construction Index (PCI) rose 5.4 points to 53.1 points in February, from 47.7 points the previous month. "There is still life left in Australia's new home building sectors," HIA chief economist Harley Dale said. "New home construction activity will hold up very well in the short term, after which there will be a marked decline in medium/high density construction relative to detached housing."
Snapped
After a euphoric public market debut, Snap shares dropped for the first time in three days after analysts began weighing in with their thoughts on the company's true valuation. The parent company of disappearing-photo app maker Snapchat priced shares in its initial public offering last Wednesday and they surged 44 per cent on the first day of trading. By Monday, five of the seven analysts who cover the company had a sell rating on it while two said hold, and overnight the stock, all the rage among millennials, dropped 12 per cent.