The sharemarket nudged close to 2017 highs in a week marked by a rebound in mining stocks as well as an equities-friendly rates decision by the US Federal Reserve.
The benchmark S&P;/ASX 200 index shook off some initial inertia on Friday to close 0.2 per cent higher at 5799.6 points, taking its weekly gain to 0.4 per cent.
The Fed on early Thursday morning lifted its key rate for the second time in three months, but did not flag any plans to accelerate the pace of monetary tightening as some had anticipated, sparking falls in the US dollar as well as a rise in sharemarkets.
Driving the weekly gains were the big miners, which looked to have recovered from a month-long slump, with strong commodity prices, a weaker US dollar as well as attractive valuations lifting the materials sector 4.3 per cent over the week.
The benchmark index on Friday rose as high as 5815, just 18 points shy of the year's high struck in February, and some investors think that level is likely to fall soon.
A "big resources rally" combining with rises in the banks in what is traditionally a good time of the year for their stocks will take the ASX 200 through 6000 points within the next six weeks, Bell Potter director of institutional sales Richard Coppleson predicted.
"This time we have everything lined up for this final assault on the 6000 level," Mr Coppleson said. "But when it gets there – driven by momentum as well – it may be the time to sit back & lock in some gains – but we'll deal with that problem in the future."
Not everyone is as bullish though. Perpetual head of investment strategy Matt Sherwood described valuations on the local market as "optimistic" and noted that most of the earnings growth was being delivered by the resources sector.
"I tend to think Australia's a pretty boring story this year, and stock selection outside resources is going to be key. Value exists elsewhere in the world," he said.
While investors took some profits on Friday, BHP Billiton rose 4.9 per cent over the week, by far the biggest tailwind for the index. Rio Tinto added 6.7 per cent over the week, South32 was up 5.3 per cent, Fortescue rallied 9.7 4 per cent and gold miner Newcrest lifted 6.1 per cent.
Banks were mostly lower over the week, after a fall in global bond yields weighed on the sector. NAB lost 3.1 per cent, Westpac fell 1.4 per cent, ANZ slipped 1.2 per cent but CBA eked out a 0.3 per cent gain.
Stock of the day: Myer
Myer shares on Friday bounced back from Thursday's slump, rising 5.1 per cent to after some positive analyst comments. Shares were whacked badly after the department store chain reported a disappointing slowdown in sales in the second quarter, but the falls have taken the stock to a level that Macquarie deems worth a buy. The investment bank's analysts concede that a reduced store footprint will only exacerbate the sales decline. But operating cash flow and net cash were both ahead of expectations, they said. "Myer has been in a trading range over the last two years," Macquarie said. "Now back towards the bottom end of its recent range, trading at 13.9x price-earnings and offering a dividend yield of 4 per cent, we believe a short-term trading opportunity is apparent." The analysts upgraded the stock to "outperform" with a target price of $1.21.
Market movers:
Australian dollar
The Australian dollar posted a solid 1.7 per cent weekly gain as the greenback lost steam after the Federal Reserve indicated it was unlikely to speed up rate hikes. The Aussie was at $US76.84¢ in late trade on Friday, within sight of a three-week peak of US77.20¢ touched early Thursday. Since August, the currency has tried around two dozen times to take a wall a resistance at US77¢, but has failed every time. It also held large gains versus the kiwi at $NZ1.0990, having earlier popped above $NZ1.1000 for the first time in 11 months.
Gold gains
Gold was another asset class profiting from the Fed's reluctance to speed up rate hikes, jumping nearly 2 per cent for the week to a peak of $US1233.13. The precious metal is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the US dollar, in which it is priced. The price rise contributed to a strong week for gold miners, with the All Ordinaries gold index rising more than 9 per cent, following two weeks of steep declines.
Mortgage rates
Westpac followed NAB's lead with an out-of-cycle rate rise that targets both owner-occupiers and investors, lifting rates by as much as 28 basis points. The move will deliver the bank more than $300 million in additional profit. The rate hikes come at a critical time for the banks with many speculating that the Australian Prudential Regulatory Authority is about to introduce new macroprudential measures to slow the property market.
Social bonds
NAB sold $500 million of "gender equality" social bonds, amid burgeoning demand for ethical investments. Proceeds of the NAB issue will refinance loans made to a portfolio of businesses, including law firms and property companies, that have a gender equality citation from Australian government body Workplace Gender Equality Agency. Gender equality bonds are rare in the responsible investing space globally. The self-arranged five-year issue, to be rated AA minus by S&P;, paid a margin of 95 basis points over bank bill swap rate.