Return of roller coaster

Published in The Age, March 2007 by Vanessa Burrow

In less than four weeks, the sharemarket benchmark index has passed the 6000-point mark, dropped almost 7 per cent, and then clambered its way back up again.

Yesterday, the S&P/ASX 200 Index climbed 93.8 points, or 1.6 per cent, to reach 5955.7 points.

This put the index close to where it was at the end of February, when risk was bothering no one.

The latest gains mean that since January 1 the S&P/ASX 200 has risen more than 5 per cent, at least 2 or 3 percentage points more than the world's better-known indices. 

But Asian markets too have staged a comeback, and were improving last night, even though Hong Kong's Hang Seng Index remains in minus territory for 2007.

In the US, the S&P 500 Index, which tracks that country's top 500 companies, has recorded its biggest one-day gain in eight months and its biggest three-day gain in four years. 

The S&P 500 rose 1.7 per cent, or 24.1 points, to 1435.04 points, doubling Monday's and Tuesday's combined gains.

US markets were stagnant yesterday until the Federal Open Market Committee enlivened the market with its commentary on the economy.

"The decision was very much in the bag in terms of leaving rates alone but they softened the wording so that it gives scope in the future to reduce interest rates," said CommSec equities economist Martin Arnold.

"Lower interest rates in the States is positive for economic growth there and with a lot of (Australian) companies generating income in the US, and with them being one of our major trading partners it's obviously good for Australian growth."

CSL, which derives income from the US, rose more than 4 per cent, to $83. 

Similarly, Westfield Group rose 63¢, or 3.1 per cent, to $20.98 and James Hardie gained 18¢, or 2.2 per cent, to $8.39.

Wealth Within chief analyst Dale Gillham said he had reversed his opinion on the direction of the Australian sharemarket, which he now believed would not experience a significant further correction.

Mr Gillham predicted investors would be more attracted to the top 20 stocks on the Australian market in the coming months.

"The market's a bit more nervous these days and they're getting a bit more gun-shy on more speculative kinds of shares," he said.

Among the big players, BHP rose 49¢ to $29.26 yesterday and the Big Four banks rose between 43¢ and 61¢ a share. 

Telstra also rose 9¢ to $4.44 as media attention focused on the Labor Party's proposed broadband roll-out.

On the currency market, the dollar pushed to a high of US80.88¢ and held its gains, making US81¢ within reach.

Option traders seemed to be expecting the dollar to remain above US80¢, favouring call options on the Aussie, rather than put options. 

Puts, which grant the right to sell the dollar, usually exceed calls, which grant the right to sell.

But for only the second time since 2004, the balance was reversed, and the calls predominated, reaching 0.19 per cent, when they had been at minus 0.89 per cent on March 6.

With US interest rates to remain at 5.25 per cent, the Aussie remains attractive to investors who seek Australia's 6.25 per cent yield.

According to Credit Suisse, the market is becoming more convinced the Reserve Bank will tighten monetary policy.