INVESTORS added $16 billion to the sharemarket's value yesterday in a sharp reversal of the volatility that has stripped billions of dollars from stock values in recent months.
A jump in employment numbers, a day after positive economic growth data astonished investors, came amid renewed optimism on the fate of Spain's ailing banking system. The benchmark S&P/ASX 200 Index closed 53.3 points, or 1.3 per cent, higher at 4108.6.
The dollar also recovered, surging back towards parity, trading at US99.39? by 5pm yesterday. Since Friday, it has risen almost US3?.
Global sentiment was boosted last night as Spain managed to sell ?2.07 billion ($A2.63 billion) worth of bonds in a critical auction.
The auction was seen as a test of whether Spain could still access global money markets after weeks of having its borrowing costs at worryingly high levels.
The yield on the 10-year bonds increased to 6.14 per cent in the sale, compared with 5.74 per cent in a similar auction in April. However, the debt-heavy country managed to meet its full funding target after the issue was oversubscribed.
In Australia, surprisingly strong employment figures showed the economy was in better shape than many believed.
The Bureau of Statistics reported that 38,900 new jobs were created last month. Economists expected a flat result.
That followed data on Wednesday showing the economy had grown 1.3 per cent in the March quarter, which was more than economists had expected, and after the Reserve Bank's 25-basis-point cut on Tuesday.
Those three factors proved positive for the dollar, which yesterday surged towards parity with the greenback.
The Aussie jumped US0.6? on news of the employment headline, as speculators rushed to cover their short positions.
Westpac senior currency strategist Sean Callow said the dollar surged after the jobs report, with extreme speculative positioning amplifying the price movement.
"The GDP number [on Wednesday] had to have an impact on the dollar," he said.
"The currency had a terrible May, losing almost US7?, when there was evidence speculators had turned against it. If the dollar had spent the past six weeks rallying then I doubt we would have got such a big response to those jobs numbers."
The sharemarket, however, is up just 0.2 per cent for the calendar year while the dollar is US9? below its recent peak.
The market has swung violently in recent months as investors weighed up Europe's ability to bail out its indebted members, with confidence ebbing and flowing with the latest economic statistics.
A sharp slowdown in China and signs of a slowdown in the US recovery have weighed on confidence while fresh evidence of the European Central Bank's willingness to play a role in the continent's crisis has buoyed hopes.
Traders said local financial stocks appeared to be a direct beneficiary of the plan to recapitalise Spain's banks. The sector accounted for 55 per cent of yesterday's index gains.
The big four banks all climbed higher, with ANZ the strongest, up 47?, or 2.2 per cent, at $21.81 while CBA climbed 99? to $51.04, NAB rose 31? to $22.56, and Westpac rose 42? to $20.77.
Some traders suggested the run of gains was a sign that recent investor cautiousness had been overdone.
But Deutsche Bank strategist Tim Baker said much still depended on Europe's policymakers.
"It's tricky to say [if the momentum will continue] because there are no more opinion polls ahead of the actual Greek election, they're in a blackout period," he said.
"Things look a bit more encouraging on the Spanish front, which looks a little closer to getting some help to recapitalise their banks, so that would be positive. But we're not there yet."
Qantas shares shed a further 6.5?, or 5.8 per cent, to $1.06.
Frequently Asked Questions about this Article…
What caused the ASX to add about $16 billion in value in one day?
A mix of stronger-than-expected domestic data and improving global sentiment drove the jump: Australia's employment report showed 38,900 new jobs, GDP surprised on the upside for the March quarter, and optimism about Spain's ability to refinance its banks after a successful bond auction lifted investor confidence.
How did the S&P/ASX 200 index and major bank shares perform during the rally?
The S&P/ASX 200 closed higher, up 53.3 points at 4108.6, and financial stocks were the main beneficiaries. The big four banks all rose, with ANZ at $21.81, Commonwealth Bank (CBA) at $51.04, NAB at $22.56 and Westpac at $20.77 on the day.
Why did the Australian dollar surge toward parity with the US dollar?
The Aussie jumped after the strong jobs report and better-than-expected GDP data, which led speculators to cover short positions. Westpac's senior currency strategist Sean Callow said extreme speculative positioning amplified the move back toward parity.
What happened in Spain and why did it matter for Australian investors?
Spain managed to sell about €2.07 billion of bonds in a critical auction, albeit at higher yields (the 10-year yield rose to 6.14%). That outcome eased fears about Europe’s banking stress and helped lift global risk appetite, which in turn supported local financial stocks and the Australian market.
Should everyday investors view the rally as a sign the market recovery is secure?
Not necessarily. While the one-day gains reflected improved data and a positive Spanish auction, strategists warned the momentum still depends on Europe’s policymakers and upcoming political events (for example, the Greek election blackout). Short-term swings can be sharp, so investors should weigh ongoing risks.
How did economic data — jobs and GDP — influence market sentiment?
The Bureau of Statistics reported 38,900 new jobs versus expectations of little change, and GDP growth for the March quarter came in stronger than expected at 1.3%. Those domestic surprises, together with an RBA rate cut earlier in the week, boosted sentiment and helped the currency and sharemarket rally.
Which sectors benefited most from the market rise and why?
Financial stocks were the biggest beneficiaries, accounting for a large share of the index gains, because investors expect plans to recapitalise Spanish banks and any easing of European stress to support global banks and risk assets.
Were there any notable losers on the day investors should be aware of?
Yes — Qantas shares fell further and were trading around $1.06 after continued declines. Even on broad up-days, individual stocks and sectors can still face downward pressure, so it’s important to look at company-specific factors as well as market-wide trends.
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