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The local market shrugged off negative offshore leads to surge to its highest close in two years, in a broad-based rally driven by strong performances in the big banks.
The benchmark S&P/ASX200 index rose 1.3 per cent to 5821.2, its highest since May 2015, while the broader All Ordinaries index added 1.2 per cent to 5860.4.
The gains came despite a weak session on Wall Street, where the Dow Jones index fell for an eighth straight session, its longest losing streak in nearly six years.
"Stocks came out of the gate incredibly strong," said Citi Global Markets director of equity sales Karen Jorritsma. "That's despite offshore leads not being very strong, and a lack of overnight data."
"I think the market is having a bounce-back."
Key to the market's robustness was the performance of the major banks, with investors cheering this month's out-of-cycle rate hikes. On Monday, Macquarie released an analysis highlighting its expectations of a 3 per cent earnings boost across the sector from the hikes, while Citi on Tuesday upgraded bank earnings by 2 per cent.
The big four banks, which together make up nearly 30 per cent of the ASX200 by market capitalisation, added between 1.6 per cent and 2.2 per cent, while the broader ASX200 financials index rose 1.8 per cent.
Jorritsma said part of the market's strength was likely also reflecting a range of positive economic data in recent days, which due to promising signs of compromise in Washington this week is finally being priced in.
"You're seeing a pick-up at the macro level, which is very supportive of the Australian market generally," she said. "Now that Obamacare isn't as much of an issue, markets are happy to recover lost ground."
Another overnight fall in the iron ore price, which shed 4.1 per cent to $US81.57 a tonne, didn't deter the big miners: both Rio Tinto and BHP Billiton added 1.5 per cent, while iron ore pure-play Fortescue gained 1.3 per cent.
Bubbling along in the background was takeover speculation. Ardent Leisure soared 11 per cent on talk that Ariadne was taking a 4.9 per cent stake in the company, while Quintis jumped 13.6 per cent after its managing director resigned to partner with a potential but unnamed buyer.
But Myer lost 5.2 per cent after the previous session's outsized 18 per cent gain on rumours veteran retailer and Premier Investments chairman Solomon Lew was buying shares in the department store chain.
"I think the market's looking for beaten up stocks with good assets, where there's an opportunity for M&A," Jorritsma said. "So there's a big appetite for that."
Vocus has offloaded its 16 per cent stake in Macquarie Telecom, about 3.3 million shares, for $41 million.
Vocus sold in a block trade at $12.20 per share to a mix of institutional and retail shareholders.
"Macquarie Telecom welcomes the release of these shares as it will increase the trading liquidity in MAQ shares and improve the diversity of its shareholder register," the telco said in a statement to the market.
Macquarie Telecom shares are 2 per cent higher at $13.58, while Vocus is 1.6 per cent higher at $4.29.
The ASX is on track for a new 2017 closing high, thanks to a surprisingly strong rally that still has some puff in it.
A close above 5816 points would also mark a new two-year closing high, while the intraday high of 5833, hit on February 16, might still be a hurdle too high for this session.
"This is the most bullish sentiment we've seen this year so far," said Atlantic Pacific Securities client adviser Gary Huxtable.
"It didn't take that long for our market to break out of the 100 point range this morning. There's every chance that it will be our highest close of the year," he added.
According to Huxtable, the slight deflation of the Trump trade has worked in favour of the banks over the last couple of sessions.
Banks are the clear leaders of the rally, with CBA soaring 2.2 per cent and moving within 80 cents of a 52-week high.
The recent round of mortgage rate rises probably isn't hurting the banks either, with Macquarie calculating that the "repricing intiatives" will add about 3 per cent to earnings.
"With last week's US health bill debacle now in the rear view mirror, and a light economic calendar this week, a lack of near-term anxiety producing events is also a likely catalyst for the improvement in investor mood today," Huxtable said.
The stars align for the local market: even Chinese iron ore futures are higher today, ending a vicious five-day selloff.
The September contract on the Dalian exchange is up 10 yuan at 558 yuan ($US81.05), indicating that the spot market may also rebound after plunging 4 per cent to $US81.57 a tonne overnight.
Back to topMantra Group shares are the biggest winner in the top 200 today, flying 10.7 per cent on talk of a buyer sniffing around.
The hotel operator reacted to the speculation, saying it's not in discussion with any potential buyer.
The Australian named Marriott International as a possible suitor, but a week earlier it also said InterContinental was an interested party.
Mantra operates hotels and resorts and has more than 20,000 rooms under management in Australia, New Zealand and Indonesia.
With short sellers holding 6.6 per cent of all shares, there may be a bit of a squeeze happening too.
The ASX has topped 5800 points in a surprisingly strong rally, driven by the big banks as investors shift focus back to the local market.
What's driving the market "is a more inward looking view on the Australian market," said Argonaut executive director James McGlew, adding that the market "doesn't necessarily have to get dragged along by what's happening on the Wall Street."
On Wall Street, the Dow dropped for an eighth straight session, its longest losing streak in six years as the Trump trade slowly deflates.
The big banks have all been making out-of-cycle rate hikes, citing rising funding costs as a reason for lifting their mortgage rates.
Bell Potter's Richard Coppleson has another explanation for the local market's outperformance: $16 billion in dividends are being paid out in these two weeks, with more than $3 billion alone today.
Coppo also took a look at how the market performed the last few times a similar sized bonanza hit the ASX and says that "if the markets are not volatile or moving around aggressively" there does seem to be some support.
Of course, if markets are volatile then investors are more likely to hold on to the cash, waiting until things have calmed.
In September 2016 the ASX clearly outperformed the S&P500 during an eight-day period of payouts, in April 2015 there was minor outperformance, while in April 2016 the local market underperformed a bit, he found.
Overall, a fairly small sample size, but it could be contributing to the ASX's current outperformance.
But it remains to be seen if the index can build on its gains and establish itself above 5800 points, a mark that it's tried and failed to hold a number of times over the past months.
Gold prices have steadied around one-month highs as investors look to see if US President Donald Trump will be able to enact promised tax cuts and infrastructure spending, taking the US dollar off multi-month lows.
Spot gold is mostly unchanged at $US1254.12 per ounce, after touching $US1261.03, the highest in a month, in the previous session.
"This is entirely driven by the weaker US dollar," Commerzbank analyst Carsten Fritsch said. "The Trumpflation trade is being priced out after the failure to repeal Obamacare."
Gold had already rallied sharply from its March 15 low after a less hawkish policy statement than expected from the Federal Reserve, which dampened expectations for near-term increases in US interest rates.
YTD performance of precious metals in USD looking good so far. @ABCBullion pic.twitter.com/oYrFSxJQLw
— John Feeney (@JohnFeeney10) March 28, 2017
Gold is highly sensitive to rising US rates, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.
Woolworths chief executive Brad Banducci has warned that rising energy costs will eventually force the food giant to increase grocery prices.
Banducci, speaking at a business forum in Melbourne, said while Woolworths was trying a range of strategies to cut energy costs, including installing more energy efficient lighting and refrigeration, energy cost increases would more than outweigh these savings.
"We manage what we can manage with energy efficiency. But given the cost increases that are coming through right now, we are trying to outrun a bear, but I am not sure we can," Banducci said. "We will have to in some way, very cautiously and carefully, pass those through to our customers, unfortunately."
Any energy-related price increases would break a long run of falling grocery prices in Australia.
Southern Cross Media will sell its northern NSW television assets to WIN corporation for $55 million.
WIN will pay $45 million on completion of the deal, and $10 million on the first anniversary.
The deal requires Foreign Investment Review Board approval (because WIN is owned by Bruce Gordon, who lives in Bermuda).
It is also conditional on Network Ten agreeing to work with WIN instead of Southern Cross Media.
An earlier proposal for Southern Cross to buy WIN's i98FM Wollongong radio station is no longer included in the deal.
Southern Cross shares are 0.6 per cent higher at $1.36.
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There is potential risk to coking coal supply and pricing from Cyclone Debbie's fallout, Goldman Sachs warns.
Analyst Andrew Quill notes that Cyclone Yasi in 2011 caused widespread flooding in the Bowen Basin, resulting in about a 20mt reduction in coking coal exports that year as well as a doubling in prices from $US150 to $US330 a tonne.
"While producers in the region took active steps in years subsequent to Yasi, such as installing in-pit pumps, we believe there is potential risk to coking coal supply and pricing from the cyclone," Quill writes in a note to clients.
So far a number of coal mines have shut down in preparation for Debbie's landfall, including BHP's South Walker Creek mine as well as Glencore's Collinsville and Newlands mines. And Aurizon has stopped delivering coal to the export ports of Abbot Point, Dalrymple Bay, and Hay Point.
Goldman reckons North American miner Teck, whose coking coal operation is based in Canada, is most likely to profit from any supply disruptions, reiterating its 'buy' recommendation of the stock.
Quintis shares are once again trading, re-emerging from a trading halt.
To recap, shares soared 10 per cent in early trade, after coming out of a trading halt, but they were halted nearly immediately.
Minutes earlier the sandalwood group revealed that founder Frank Wilson resigned to partner with an mystery backer and plot a potential takeover of the hedge fund target.
Wilson described his partner as "well funded" and "credible", in a statement explaining his intentions.
Quintis separately informed shareholders of "an unnamed international corporation" that was working with Wilson to attempt a play for control of the board.
"The company notes that it has not received any formal or informal proposal," and "nor has it received any specific information in relation to what the potential terms and conditions may be if an acquisition proposal is submitted," Quintis said.
A few minutes ago it repeated that is still doesn't know the identity of the mystery "international corporation", and that it's unaware of the timing of any potential takeover proposal.
Investors don't seem to be fazed, driving the shares up 12 per cent to $1.23.
Germany's two representatives on the European Central Bank's main policy-making body have called for it to prepare to wind down its aggressive stimulus policy as soon as economic conditions allow it.
The comments by Bundesbank president Jens Weidmann and by Sabine Lautenschlaeger, who represents the ECB's supervisory arm on the bank's executive board, highlight Germany's impatience with the direction the ECB has taken under president Mario Draghi.
They also reveal the rift between themselves and supporters of the ECB's current policy of ultra-low interest rates and massive bond buying, which was defended on Monday separately by the central bank's chief economist Peter Praet and by Belgian central bank governor Jan Smets.
"I would like to see a less expansive stance," Jens Weidmann, who sits on the ECB's Governing Council, said at an event in Dusseldorf.
He and Lautenschlaeger said the ECB should start making plans for an eventual end to its stimulus once the recent, oil-fuelled rise in prices becomes sustainable.
"We should prepare for a change in the policy, and as soon as the data is stable and we have a sustainable path towards our objective of price stability, then we are well prepared to do" that, Lautenschlaeger told CNBC.
An outspoken policy conservative, Lautenschlaeger said that if economic data remain supportive, the ECB could discuss and decide on its next step after June.
But Praet, a key ally of Draghi, argued that while the "deflation risk is gone" the eurozone still needs substantial stimulus as the inflation rise could stall or even reverse if the ECB removed stimulus too early.
That came as German business morale hit its highest level in nearly six years in March, suggesting company executives in Europe's largest economy are brushing off concerns about the threat of rising protectionism and Germany's own election issues.
The surprisingly strong business climate index, published on Monday by the Ifo economic institute, added to signs that the German economy is firing on all cylinders at the start of 2017, helped by rising global demand for cars and machinery.
"Wow! Nobody expected such a clear rise," LBBW chief economist Uwe Burkert said. "The concerns about Brexit, Trump and the upcoming elections in France seem to have disappeared."
Myer insists it has not been approached by a prospective buyer following the huge buy-up that sent the department store operator's shares surging by almost 20 per cent late yesterday.
The company was rumoured to be a takeover target after a series of trades in which almost two million shares changed hands for about $94 million. But Myer this morning said it had no information on what prompted the flurry of activity.
"Myer has not received any communication in relation to yesterday's trading or any corporate activity," Myer said.
Speculation has centred on billionaire Solomon Lew, a former chairman of the Coles Myer group, and now the chairman of retail brands house Premier Investments.
Myer shares have fallen back 4 per cent to $1.21. The stock dropped below $1.07 last week - its lowest level since November.
Bankers believe if the buyer is Lew, he may sit on a 10 per cent stake in the expectation the retailer becomes a target for trade buyers or private equity investors.
Here's another struggling retailer: Oroton shares have slumped 5.7 per cent to $1.48 after the clothing and accessories retailer withheld its interim dividend following a 52 per cent slump in net profit slump to $1.8 million in the January-half.
Earnings before interest tax depreciation and amortisation fell 43.5 per cent to $5 million for the six months ending January 28 as weak sales at Oroton and GAP were exacerbated by a $1.3 million hit from the weaker Australian dollar, which pushed up the cost of goods.
The result was in line with OrotonGroup's $4.5 million to $5 million guidance in January, when the retailer issued a profit warning after same-store sales failed to rebound after Christmas.
Sales fell 10 per cent to $67.1 million, due mainly to the exit of discontinued categories, lower sales at outlet stores and weaker sales at GAP.
Group same-store sales excluding discontinued categories fell 8 per cent. Oroton same-store sales were down 11 per cent following 11 per cent growth in the previous corresponding period, while GAP same-store sales fell 12 per cent (vs up 6.4 per cent).
Oroton closed its GAP outlet store at Birkenhead Point in Sydney last month to focus on full-price sales at CBD stores.
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Quintis founder Frank Wilson has resigned from the sandalwood group in sensational circumstances to partner with a mystery backer and plot a potential takeover of the hedge fund target.
The former TFS revealed Wilson's exit in a statement to the ASX less than 24 hours after Quintis escalated its defence against short-sellers.
The shares rallied 10 per cent to $1.21 after losing 22 per cent of their value in the wake of claims published by Glaucus that the company's real value was zero.
"Mr Wilson has indicated that he has received an offer to potentially partner with an unnamed international corporation to present a proposed change of control transaction to the company board," Quintis said.
"The company notes that it has not received any formal or informal proposal," and "nor has it received any specific information in relation to what the potential terms and conditions may be if an acquisition proposal is submitted," Quintis said.
Shares are off to a solid start, with the big banks doing most of the heavy lifting but most other blue chips also enjoying gains.
The ASX has added 0.4 per cent to 5767,7, defying weak leads from Wall Street, where the Dow fell for an eighth straight session.
Miners are also posting some gains, despite falls in commodity prices overnight.
"Much of the damage may already have been done with significant pre-emptive sell-offs in stocks like BHP; Rio Tinto and Fortescue that could see them closer to their lows than their highs at this stage," said CMC chief market analyst Ric Spooner.
The big four banks are all up around 0.9 per cent, while BHP has added 0.5 per cent and even recent laggard Telstra up 0.3 per cent.
Utilities is the only sector posting losses, down 0.6 per cent amid a 0.8 per cent drop in AGL Energy.
Myer is the biggest loser among the top 200, falling 2.8 per cent after its 18 per cent rally yesterday.
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It is a stretch to believe anyone has really bought into the idea that the Trump administration can really deliver on far-reaching tax reform, says IG strategist Chris Weston:
But what we can see, is that to a large extent it isn't going to worry them too much either. This is a Teflon market where literally nothing sticks. This seems unfortunate, as volatility provides opportunity.
The USD and the fixed income markets have seen quite a bit of attention, with good buying across the US fixed income curve and all eyes maintain a focus on whether the US 10-year Treasury will ultimately test and break key support at 2.30% to 2.32%. With the yield currently sitting down four basis points (on the session) at 2.37%, a break here will have huge implications on markets in my opinion. The USD was looking like the weakest currency in G10 during Asian trade yesterday, but that accolade can now be taken by the AUD, however, there is still much technical damage unfolding in the USD and should be firmly on the radar.
European data continues to impress, with a solid IFO business confidence print and this is probably best reflected in the yield premium demanded to hold US 10-year treasuries over German 10-year bunds falling to 1.97%. This yield spread stood at 2.2% a couple of weeks ago and the narrowing of the premium has caused stronger inflows into the EUR. The implied probability of Marine Le Pen winning the French election sits at 24% (the lowest seen during her campaign) and this is being priced out of financial assets too, with the betting markets given Emmanuel Macron a 70% chance.
US equity markets have fallen a touch, but certainly not to the extent futures markets were suggesting when Asia was trading yesterday. In fact, S&P 500 futures are 0.5% higher from the ASX 200 cash close and it's no surprise then to see SPI futures up 0.3% in the night session. Our ASX 200 call sits at 5767 and despite the Aussie index performing strongly on a relative basis yesterday it seems the market is happy to buy pullbacks despite this growing feeling (and as mentioned yesterday) that realistically we should be thinking about a cut in the US corporate tax rate to 28% to 30% and not 15%.
The bout of weakness in Australia's key terms of trade and a feeling that the Chinese trend and momentum trader may start to speculating more on the short side in the bulk commodities is now a must watch story domestically. AUD is therefore in focus.
In case you missed it, a mystery buyer snapped up a near-10 per cent stake in Myer late yesterday afternoon, triggering an 18 per cent rally in the stock.
This morning speculation continues if Premier Investments chairman and veteran retailer Solomon Lew is behind the raid.
Lew has a history of causing mischief in the retail sector after using his stake in David Jones to complicate a $2 billion takeover bid for that company by South Africa's Woolworths in 2014, the AFR's Michael Smith points out:
Lew made a $190 million profit on that deal and there has been speculation ever since that Myer would be his next target.
The fact that Bloomberg data shows Pershing Securities acquired $196 million worth of Myer shares on Monday suggests a link to Lew, who used the same company to buy the David Jones stake. However, there was no confirmation from Lew's camp that he was behind the trading late on Monday, and Myer management said it was still in the dark.
Analysts have previously said there would be around $20 million in synergies from a tie-up between Lew's Premier Investments and Myer. This would come from being able to negotiate better buying and lease terms and reducing head office costs.
However, the timing looks odd given Premier is focused on the rapid global expansion of its Smiggle stationery business, which Lew said as recently as last week was delivering the best return of capital as opposed to a major acquisition.
Lew is notorious for playing his cards close to his chest, though, and it is possible he would acquire a stake in Myer as a strategic play and sit on it without making a full takeover offer.
Locally, banks are continuing their out-of-cycle rate hikes, with Westpac's St George and BankSA are set to announce rate increases of up to 32 basis points, making it likely its other subsidiary Bank of Melbourne will follow.
AMP Bank is also set to announce a new round of rate rises for new and existing home buyers and investors of up to 28 basis points, its second mortgage rate rise in two months.
Last week Commonwealth Bank week followed ANZ and NAB in hitting property buyers with another rate increase.
AMP Bank, the banking division of the nation's largest diversified financial conglomerate, claims the latest rise "reflects wholesale funding costs, the need to maintain a balanced portfolio and the market environment".
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