Hopes for euro solution lift stocks

THE sharemarket hit a near-three-month high yesterday after Germany's government said it would support the European Central Bank's bond-buying program, and as investors hoped Spain would call on the European Union for a full bailout.

By InvestSMART · 8 Aug 2012

By InvestSMART ·
8 Aug 2012

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It was enough to see riskier assets become more popular, with resource stocks making the biggest gains.

The dollar surged above US106? after the Reserve Bank kept the cash rate steady at 3.5 per cent.

The benchmark S&P/ASX 200 Index closed up 19 points, or 0.4 per cent, at 4291.6.

Economists had expected the RBA to keep the cash rate steady, with most tipping it would cut rates one more time by the end of the year.

But the RBA said economic growth was around trend and core inflation around the bottom of its target range, leading some to conclude that there would be no more cuts this calendar year.

"We've got one more rate cut in there, we've actually formally got it in September, but I don't think it's going in September now," said NAB chief economist Alan Oster.

"I think it'll probably be in a couple of months, and it's not impossible that you won't even get it. We may be very close to the bottom of the [rate cut] cycle."

Banks had a good day after rates were kept steady, with Westpac climbing 23?, or 1 per cent, to $23.68. Commonwealth followed close behind, rising 44?, or 0.8 per cent, to $56.82.

Some of the first companies to report on last financial year posted results below market expectations.

Leighton Holdings was the first big company to release its full-year profit, disappointing the market, as did hearing device maker Cochlear and toll road operator Transurban.

Leighton shares dropped 25?, or 1.5 per cent, to $16.48. Cochlear fell $3.40, or 5.1 per cent, to $63 and Transurban lost 9?, or 1.5 per cent, to $5.94.

Equipment maker Bradken's 49 per cent rise in net profit sent its shares up 58?, or 11.2 per cent, to $5.74.

Resources were stronger, with BHP Billiton up 16? at $32.16, and Rio Tinto 72? higher at $54.85.

BlueScope Steel was the best performer among the market's top 100 companies, up 1.5?, or 5.7 per cent, at 28?. With AGENCIES

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Frequently Asked Questions about this Article…

Why did the Australian sharemarket hit a near-three-month high?

Investor hopes that Germany would back the European Central Bank's bond-buying program and that Spain might seek a full EU bailout boosted risk appetite. That, together with the RBA keeping the cash rate steady, helped lift the S&P/ASX 200 and pushed riskier assets — particularly resource stocks — higher.

How did the Reserve Bank of Australia (RBA) interest rate decision affect markets?

The RBA kept the cash rate steady at 3.5 per cent. Markets reacted by favouring riskier assets and banks, while economists debated whether another rate cut is likely later in the year after the RBA said growth was around trend and core inflation was near the bottom of the target range.

What happened to the S&P/ASX 200 Index on the day covered by the article?

The benchmark S&P/ASX 200 closed up 19 points, or 0.4 per cent, at 4,291.6, reflecting the overall rise in investor risk appetite following European developments and the RBA decision.

Which bank stocks benefited from the RBA decision and how did they trade?

Major banks had a good session after the RBA decision. Westpac climbed to about $23.68 and Commonwealth Bank traded higher at about $56.82 as investors responded positively to the steady cash rate.

Which companies reported results that disappointed the market?

Some of the first large companies to report full-year results underwhelmed investors. Leighton Holdings disappointed and its shares fell to about $16.48, Cochlear’s result disappointed and its shares fell to about $63 (down roughly $3.40 or 5.1%), and Transurban also posted results below expectations and its shares fell to about $5.94.

Which companies reported strong results and share gains?

Equipment maker Bradken reported a 49 per cent rise in net profit, which sent its shares sharply higher to about $5.74. Resource names also outperformed, contributing to the market rally.

How did major resource companies perform during the rally?

Resources were among the stronger sectors. The article highlights gains for major miners such as BHP Billiton and Rio Tinto, and notes that BlueScope Steel was the top performer among the market’s top 100 companies that day.

Did the Australian dollar move after the RBA announcement?

Yes — the article reports that the dollar surged against the US dollar after the RBA kept the cash rate steady, reflecting currency market reaction to the central bank’s decision and the broader risk-on tone.