Index rises, but not enough for traders

THE sharemarket finished 1 per cent higher yesterday, leaving traders disappointed it did not rise further after European and US markets burst to life on Friday following the euro summit.

By InvestSMART · 3 Jul 2012

By InvestSMART ·
3 Jul 2012

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THE sharemarket finished 1 per cent higher yesterday, leaving traders disappointed it did not rise further after European and US markets burst to life on Friday following the euro summit.

Futures markets had tipped the benchmark index would open 38 points higher the equivalent of about 1 per cent after Europe's leaders agreed to provide billions of euros in financial aid to the troubled banks in Italy and Spain, and kick-start regional growth with a ?120 billion ($148 billion) "growth pact".

But after rising nearly 1.4 per cent before noon, the market lost steam as investors turned their attention to the larger problems facing Europe.

The S&P/ASX 200 Index finished up 38.4 points, or 0.9 per cent, at 4133, while the dollar closed at US102.25?, up from US101.78? at Friday's close.

Brokers said the weekend's events in Europe encouraged investors to return to the market, and as it was also the start of the new financial year there was interest in second and third-tier stocks, such as BlueScope Steel (up 11.7 per cent), Fairfax Media (up 5.8 per cent) and Challenger (up 5.5 per cent).

"We entered the new financial year today, so those that were restricted from opening new financial positions [last week] were . . . a little freer to invest in the broader market," said Shaw Stockbroking's Jamie Spiteri.

But fund managers said that, while the European summit had been a good thing for the market, bigger problems would continue to dog shareholders.

"[Of] the commentators that I prefer to listen to, the consensus seems to be that there needs to be some form of eurobond before [we] can finally put a line under the sovereign debt crisis," said Don Williams of Platypus Asset Management.

"The issue for Europe is that, even if they resolve the current crisis today, they still end up with a massive debt load that is going to continue to grow for years, and that's going to constrain growth."

Resource and energy stocks were among the favourites yesterday, as investors' appetite for risk improved slightly.

BHP Billiton rose 27?, at $31.72 while Rio Tinto firmed 1? to $56.51.

The financial sector rose 1.2 per cent, helped by Westpac, up 35? at $21.46, and ANZ, up 38? at $22.35.

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Frequently Asked Questions about this Article…

How did the ASX 200 perform after the euro summit and why did traders seem disappointed?

The S&P/ASX 200 finished up 38.4 points, or 0.9%, at 4133 following the euro summit. Traders were disappointed because futures had tipped a stronger open and the market rose nearly 1.4% before losing steam — investors had hoped for a bigger follow-through after European and US markets rallied.

What did European leaders agree at the euro summit and how did that affect Australian markets?

European leaders agreed to provide billions in support for troubled banks in Italy and Spain and to kick-start growth with a €120 billion 'growth pact'. That news encouraged investors to return to the market and helped lift Australian stocks, although concerns about larger European problems limited gains.

Which types of stocks led gains on the day and what drove that interest?

Resource and energy stocks and some second- and third-tier names led gains as investors’ appetite for risk improved. The start of the new financial year also freed some investors to open positions, boosting interest in stocks like BlueScope Steel, Fairfax Media and Challenger.

Which specific ASX companies were mentioned as having notable moves?

The article names BlueScope Steel (up 11.7%), Fairfax Media (up 5.8%) and Challenger (up 5.5%). It also reports BHP Billiton rose, trading at $31.72, and Rio Tinto firmed 1% to $56.51. Financials such as Westpac and ANZ also rose, trading at $21.46 and $22.35 respectively.

How did the financial sector perform and which big banks helped the rise?

The financial sector rose about 1.2% on the day, helped by gains in major banks — Westpac and ANZ were cited as rising to $21.46 and $22.35 respectively, which supported the sector’s overall lift.

What caution did fund managers express about the European situation despite the summit outcome?

Fund managers warned that while the summit was positive, bigger problems remain. Several commentators said a form of eurobond may be needed to fully resolve the sovereign debt crisis, and even if the immediate crisis is addressed, a large debt load could constrain European growth for years.

How did currency markets react — what happened to the Australian dollar?

The Australian dollar closed at US102.25 cents, up from US101.78 cents at Friday’s close, reflecting a modest strengthening alongside the improved risk sentiment.

Why did the start of the new financial year influence trading activity on the ASX?

Brokers said the new financial year meant some investors who had been restricted from opening new positions were freer to invest, prompting increased activity and interest in a broader range of stocks, particularly second- and third-tier names.