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?.

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Frequently Asked Questions about this Article…

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

The market rose after Germany said it would support the European Central Bank’s bond‑buying program and investors hoped Spain would seek a full EU bailout. That improved risk appetite, boosting resource stocks and helping the S&P/ASX 200 to close up 19 points, or 0.4%, at 4291.6.

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

The RBA kept the cash rate steady at 3.5%. The bank said economic growth was around trend and core inflation near the bottom of its target range, which led some market participants to conclude there may be no more rate cuts this calendar year.

What did NAB chief economist Alan Oster say about the likelihood of future rate cuts?

Alan Oster said there was one more rate cut “in there” and it had been pencilled in for September, but he didn’t expect it in September now. He suggested it might come in a couple of months, and that it’s possible a further cut may not happen – we could be close to the bottom of the rate‑cut cycle.

How did the Australian dollar react to the RBA’s decision?

Following the RBA’s decision to hold the cash rate, the Australian dollar surged above US106, reflecting the market reaction to the central bank’s stance.

Which bank stocks benefited from the RBA decision?

Banks had a good day after the rates decision. Westpac climbed about 1% to $23.68, and Commonwealth Bank rose about 0.8% to $56.82, according to the article.

Which large companies reported disappointing full‑year results and what happened to their shares?

Some early reporters missed market expectations. Leighton Holdings disappointed and its shares fell to $16.48, Cochlear reported below expectations and its shares fell $3.40 (about 5.1%) to $63, and Transurban also missed expectations and its shares fell to $5.94.

Which companies were notable winners on the day and why did they rise?

Equipment maker Bradken reported a 49% rise in net profit and its shares jumped 11.2% to $5.74. Resource stocks also outperformed: BHP Billiton and Rio Tinto were stronger (BHP at $32.16 and Rio Tinto at $54.85), and BlueScope Steel was the best performer among the market’s top 100 companies, up about 5.7%.

What does the day’s market action mean for everyday investors?

The market rally shows how global policy moves and central bank guidance can quickly shift investor sentiment: positive European developments and a steady RBA rate boosted risk‑on assets, especially resources. At the same time, company earnings still matter—some large stocks disappointed while others rose sharply—so everyday investors should watch both macro signals and individual company results.