European debt auctions hearten market

THE sharemarket ended the week at its highest point this year after a round of positive debt auctions in Europe and gains in commodity-driven stocks.

By InvestSMART · 14 Jan 2012

By InvestSMART ·
14 Jan 2012

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THE sharemarket ended the week at its highest point this year after a round of positive debt auctions in Europe and gains in commodity-driven stocks.

Shares closed the week up 2 per cent after yields on government debt issues by Spain and Italy fell to their lowest in months and the European Central Bank held interest rates steady at its first meeting of 2012.

Energy, miners and industrials led the market higher, with most sectors ending in positive territory. Even the embattled retail sector managed to edge higher over the week.

But investors pointed to a note of caution before more US earnings out overnight and after US oil giant Chevron reported a significant fall in third-quarter results on declining production.

"We're looking pretty cautious and volumes are thin ahead of the long weekend in America," one institutional dealer said. "We had a reasonable result from Alcoa but a downgrade from Chevron, so sentiment is mixed."

At the close yesterday, the benchmark S&P/ASX 200 index was up 14.9 points, or 0.4 per cent, at 4195.9, while the broader All Ordinaries rose 17 points to 4255.4. The March share price index futures contract was up 28 points at 4180.

Shares in Linc Energy rose 17.7 per cent to $1.33 on speculation that it had found a buyer for its Teresa coal asset in Australia.

Woodside Petroleum ended up 1.5 per cent at $32.85, while Santos gained 0.8 per cent to $12.85 after it confirmed it would develop the $490 million Fletcher Finucane oil project in the Carnarvon Basin off Western Australia.

Financial stocks remained in focus before the release of earnings results from JP Morgan in the US, and after a surprise profit downgrade from insurer QBE dragged the market lower on Thursday. QBE shares fell another 3.5 per cent to $11 yesterday. "With a company like QBE, it could take them nine months before they crawl back up again," Ord Minnett equities consultant Ian Merrick said.

All of the big four banks closed higher despite news ANZ could trim hundreds of Australian jobs in the first half as part of an "aggressive cost reduction program" to keep the bank afloat.

ANZ left interest rates for its home and business loans on hold at its monthly rate review meeting.

Commonwealth Bank rose 0.3 per cent to $50.07, National Australia Bank added 1 per cent to $23.80, and ANZ gained 0.5 per cent to $21.20.

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Frequently Asked Questions about this Article…

Why did the sharemarket finish the week at its highest point this year?

The market rallied after a round of positive European debt auctions and a drop in yields on Spain and Italy, while the European Central Bank held interest rates steady. Commodity-driven sectors — especially energy, miners and industrials — led gains, pushing the S&P/ASX 200 and the All Ordinaries higher.

How did European debt auctions and the ECB’s decision affect investor sentiment?

Positive debt auctions in Europe and the ECB holding rates helped lower government bond yields and improved risk appetite. The article says yields on Spanish and Italian debt fell to their lowest in months, which helped lift markets, though investors remained cautious ahead of more US earnings.

Which sectors and stocks led the market rally mentioned in the article?

Energy, mining and industrial stocks led the gains. Specific movers included Linc Energy (up 17.7% to $1.33 on buyer speculation), Woodside Petroleum (up 1.5% to $32.85) and Santos (up 0.8% to $12.85 after confirming the $490 million Fletcher Finucane oil project).

What was the market impact of Santos confirming the Fletcher Finucane oil project?

Santos confirmed it would develop the $490 million Fletcher Finucane oil project in the Carnarvon Basin off Western Australia, and the announcement coincided with a 0.8% rise in its share price to $12.85.

How did Chevron’s third‑quarter results influence markets and investor caution?

Chevron reported a significant fall in third‑quarter results due to declining production. That downgrade/weak result contributed to mixed sentiment and prompted investors to be cautious ahead of further US corporate earnings.

What happened with financial stocks and major Australian banks in the article?

Financials were in focus before US earnings from JP Morgan. Insurer QBE suffered a surprise profit downgrade and its shares fell another 3.5% to $11. Despite news ANZ may cut hundreds of Australian jobs as part of cost reductions, all big four banks closed higher: Commonwealth Bank rose 0.3% to $50.07, National Australia Bank added 1% to $23.80, and ANZ gained 0.5% to $21.20.

Why did Linc Energy’s shares surge and what should investors note?

Linc Energy’s shares jumped 17.7% to $1.33 on speculation it had found a buyer for its Teresa coal asset in Australia. The article attributes the move to that speculation, which is the stated reason for the sharp share-price change.

What market indicators were reported and what did they show about overall market direction?

The article reports the S&P/ASX 200 was up 14.9 points (0.4%) at 4195.9, the All Ordinaries rose 17 points to 4255.4, and the March share price index futures contract was up 28 points at 4180 — all indicating the market was higher at the close.