The Santa rally made a substantial impact on the Australian stock market, pushing the share market to its highest gain in nearly three weeks on Friday.

The continued surge in gold stocks and significant gains in mining shares occurred as investors eagerly anticipated US interest rate cuts, hoping this trend would create a market upswing beneficial to all sectors.

Over 100 Points Gained in a Day

By the end of the trading day, the ASX 200 index had risen by 105.30 points, or 1.2%, closing at 8697.30 points. This brought the total gain for the week to 0.7%.

With only 12 trading days remaining this year, the Australian share market appears poised for a robust year-end finish, following the index's third consecutive rise and its best weekly performance since August.

Miners Lead the Charge

The major mining companies continued their strong performance, with shares in iron ore giants BHP (ASX: BHP) and Fortescue (ASX: FMG) both increasing by 1.1%, while Rio Tinto (ASX: RIO) achieved an impressive 2.5% jump.

Gold mining companies performed even better, with Northern Star (ASX: NST) rising by 2.9%, Evolution Mining (ASX: EVN) up 4.2%, and Newmont (ASX: NEM) surging by 5.7% after spot gold prices soared to $US4280 an ounce. Gold and copper producer Greatland Resources (ASX: GGP) significantly climbed by 9.9%, making it the best-performing large-cap company.

Strong Performance from Banks

Meanwhile, banks on the opposite side of the traditional ASX investing spectrum also experienced gains, with all four major banks ending the day higher.

Commonwealth Bank (ASX: CBA) led the sector with a 2.1% rise, followed by National Australia Bank (ASX: NAB) increasing by 1.8%, Westpac (ASX: WBC) up by 1.4%, and ANZ Bank (ASX: ANZ) advancing by 1.2%.

This outcome was even more remarkable given the news that former ANZ boss Shayne Elliott was suing the bank after losing $13.5 million in bonuses.

However, some market sectors underperformed, with oil stocks dropping due to lower crude prices. Santos (ASX: STO) fell by 0.5%, and gas giant Woodside (ASX: WDS) edged down by 0.08%.

Additionally, some technology stocks weakened, partly due to US company Oracle’s significant 10.8% decline after it unveiled massive new AI development expenditures. TechnologyOne (ASX: TNE) fell by 1.6%, and Xero (ASX: XRO) declined by 0.5%. Overall, it was a strong market day, as suggested by the large points gain, and with the US Santa rally in full swing, further increases before the Christmas break would not be surprising.

Looking Ahead

Next week promises to be interesting for Australia, with the expected release of the 2025-26 Mid-Year Economic and Fiscal Outlook (MYEFO).

Treasurer Jim Chalmers has generally provided positive fiscal news for Budget releases, and this instance is expected to be no different, with the deficit projected to be around $32 billion versus March's projections of $42 billion.

Nevertheless, after a series of surprise Budget surpluses, a period of increased deficit is anticipated, with no clear new revenue sources in sight to balance the budget.

Anticipated Central Bank Divergence

Central banks are set to take center stage with potential divergence in official rates looming.

The European Central Bank (ECB) is meeting on Thursday and is expected to maintain rates at 2.00%. In contrast, the Bank of England (BOE) is anticipated to reduce rates by a quarter point to 3.75% the same day.

The UK Government’s budget measures are seen as insufficient to prompt higher inflation, providing the BOE a brief window to cut rates.

Conversely, the Bank of Japan (BOJ) is expected to raise its official rates from 0.5% to 0.75%, following Governor Kazuo Ueda’s recent indication of tighter monetary policy.

Other key economic metrics to watch include the US jobs report, inflation figures, and China’s monthly updates on retail spending, industrial production, and fixed asset investment for November.

The US nonfarm payroll figures are projected to show about 60,000 new jobs and a slight uptick in the unemployment rate, while consumer prices (CPI) are expected to annually remain around 3%, still above the targeted range set by the US Federal Reserve.