Australian markets got off to a roaring start to 2013 yesterday, with the avoidance of the January 1 US fiscal cliff of tax increases and spending cuts combining with rising iron ore prices to send the stockmarket on its biggest one-day move since July.
The benchmark S&P/ASX 200 index extended a strong end-of-year run by climbing 57 points, or 1.2 per cent, to a 19-month high of 4705.9.
The big miners BHP Billiton and Rio Tinto led the gains on a combination of strong iron ore prices and investors feeling more confident about sitting in risky assets.
The Australian dollar rose for the same reasons, with the US dollar slipping against most major currencies, despite the good news, as traders who had bought the greenback for its safe-haven value amid the fiscal cliff fears breathed a sigh of relief.
"The removal of the fiscal cliff threat provides a positive backdrop for Australia, where growth may slow to around 2 per cent during the first half of the year as the mining investment boom fades, but should pick up during the second half in response to the lagged effect of lower interest rates and the improvement in global growth,"AMP head of investment strategy Shane Oliver said.
The dollar was trading yesterday afternoon at $US1.0472, up from $US1.0397 earlier in the day, as traders ignored housing data that showed prices had fallen in December, dampening expectations in the property sector for the coming year and showing that aggressive interest-rate cuts over the past year had done little to spur demand.
"Anything that's good for the global economy is good for the Aussie dollar," ANZ bank strategist Andrew Salter said.
Frank Casarotti, head of distribution for the Magellan Financial Group, a fund management group that has a strong exposure to US-listed shares, said the fiscal cliff deal backed its outlook on American stocks.
"The news was no surprise. We have been banking on the fact that the politicians on both sides of politics in the US would eventually solve the near-term requirements around funding the fiscal cliff," Mr Casarotti said.
"We have a relatively positive outlook towards US economic growth, predominantly driven by the need for the housing construction section to recover. Ultimately that will drive unemployment down and it will stimulate further consumer confidence and generate some much-needed tax receipts for the government."
The Magellan fund has some 70 per cent of its exposure to US-listed companies, including Coca-Cola, American Express, Yum Brands, Wells Fargo bank and US Bankcorp.
Dr Oliver was also upbeat about the US.
"The breakthrough on the US fiscal cliff adds confidence to our view that a pick-up in global growth to around 3.25 per cent this year, helped by stronger growth in the US, a slight pick-up in China and a fading of Europe's recession . . . will underpin further gains in global sharemarkets," he said.
Mining and material stocks were the best performers on the ASX yesterday, with the nation's biggest company, BHP, up 2 per cent and fellow mining giant Rio up 2.4 per cent.
Iron ore stocks were buoyed by a 4 per cent jump in the price of 62 per cent grade iron ore at Chinese ports to a seven-month high of $US144.90.
Fortescue Metals Group jumped 5.8 per cent, while Gindalbie Metals, which yesterday announced it had made its first iron ore shipment, rose 11 per cent.
Media stocks also had a strong opening day of 2013, with APN News & Media finishing up 6 per cent, News Corporation up 3.1 per cent and Fairfax Media 2 per cent.
Fiscal cliff fears were put on hold after a budget deal between President Barack Obama and congressional Republicans. The deal, struck on New Year's Eve, was sealed yesterday when the House of Representatives voted to approve the compromise that postpones the spending cuts and tax increases for two months.
Rio Tinto Iron Ore chief Sam Walsh said the danger for the mining industry around the fiscal cliff would be its potential to affect the confidence of key customers.
"The fiscal cliff for my iron ore business in particular is more about emotion and contagion that the concern flows through," Mr Walsh said.
"We believe the short and long-term outlook for iron ore is good, but it depends on governments and industry having the confidence to invest. It can create uncertainty around investment decisions for our customers."
Mr Walsh said he was "a great believer" in the US, and backed the country to find its way out of its current economic predicament.
"These are entrepreneurial people and I do believe that their economy will get back on track. Notwithstanding the drama that we've seen, the fundamentals in the US still remain strong."
While no one sees current iron ore prices as sustainable, with big supply jumps from the likes of Rio, BHP and Fortescue in the pipeline, they have recovered remarkably quickly from lows of about $US87 a tonne in September.
Gindalbie managing director Tim Netscher said the rebound reinforced the view that low prices were also unsustainable because they made China's abundant high-cost mines unprofitable and eventually led to closures.
"There appears to be a natural floor on the price of about $US120 a tonne," Mr Netscher said.
"We subscribe to that from our visits to China and we don't see it falling below that on a sustained basis."