AUSTRALIAN investors can thank Monday's Queen's Birthday holiday for stopping them buying into what appears to be a fizzer of a rally on the back of Spain's much anticipated ?100 billion ($126 billion) bailout of its banking system.
Stocks were expected to get a boost from the dramatic decision - particularly after the public holiday forced traders to miss out on Monday's regional rally - but weak offshore leads from the US (down 1.3 per cent) and London (flat) dampened expectations, and the bourse barely stumbled across the line, closing only slightly higher.
The S&P/ASX200 index closed up 9.2 points, at 4072.9 points, while the All Ordinaries index was up 7.1 points at 4118.4.
Analysts said the fact that Spain's capital shortfall would be addressed with a rescue plan had caused relief for investors, but they remained sceptical about the plan because any extra funding for the Spanish government would increase its already high debt to gross domestic product ratio, which is currently 68.5 per cent - though it is still well below Greece (165 per cent), Italy (120 per cent), Ireland (108 per cent) and Portugal (107 per cent).
Bill Bovingdon, the chief investment officer from Altius Asset Management, said the effort to save Spain's banks had boosted risk appetite, but it was only temporary.
"There's a degree of scepticism building in financial markets because they want to see something a bit more enduring rather than just another just-in-time measure that prolongs the agony," he said.
"There's concern about the conditions surrounding the bailout package, and obviously we still have a fair-sized hurdle coming up this weekend with the Greek elections."
National Australia Bank's business survey found conditions and confidence had taken a turn for the worse in May. It showed a fall in both indices to nine-month lows, with conditions deteriorating to -3.5, from -0.1, and confidence dropping to -2.2 from 4.1.
However, analysts disagreed about its significance. Alvin Pontoh, the Asia-Pacific macro strategist for TD Securities, said the fall in both indices was likely exaggerated by negative global headlines, so not too much should be read into them.
But the UBS economists Scott Haslem and George Tharenou said the data should cause a rethink of last week's stronger-than-expected GDP figures.
"Today's NAB business survey really does question the 'reality' of the Q1 data," they wrote in a note to clients.
"While Reserve Bank governor Stevens's comments last week suggested the underlying economy ... is around trend ... the slump in business conditions in recent months suggest that growth slowed further in Q2, to a well below trend pace."
Concerns about the situation in Europe led to pressure on resource stocks. BHP Billiton fell 19? to $31.72 and Rio Tinto fell 94? to $54.65.
But banks and financial stocks ignored the concerns. Commonwealth Bank led the charge, rising 35?, or 0.7 per cent, to $50.82. ANZ Bank rose 21?, or 1 per cent, to $21.77. AMP was also stronger, rising 10? to $3.91.
Qantas regained some lost ground, its shares rising 10.5?, or 10.8 per cent, to $1.075, on news the airline was monitoring potential takeover attempts - as a slumping share price raises the prospect of private equity or other parties making a move - with an internal task force.
Frequently Asked Questions about this Article…
How did the S&P/ASX200 and All Ordinaries perform after Spain's banking bailout news?
The S&P/ASX200 closed slightly higher, up 9.2 points at 4,072.9, while the All Ordinaries rose 7.1 points to 4,118.4. Momentum was muted because weak leads from the US and London, and a local public holiday that kept some traders out, left the rally looking subdued.
What impact did Spain's roughly $126 billion bank bailout have on investor sentiment?
The bailout produced an initial relief rally because it addressed a capital shortfall in Spain's banks, but analysts remained skeptical. They warned the plan could increase Spain's debt-to-GDP (about 68.5%) and be only a short-term fix rather than an enduring solution, so the boost to risk appetite looked temporary.
What did the NAB business survey reveal and why should everyday investors care?
The National Australia Bank business survey showed conditions and confidence slipped to nine-month lows in May: conditions fell to -3.5 (from -0.1) and confidence dropped to -2.2 (from 4.1). Analysts were split on the importance of the fall, but UBS economists suggested the data calls into question the strength of recent Q1 GDP figures — a signal investors should watch when gauging economic momentum.
Which sectors were pressured by European concerns and which held up on the day?
Resource stocks came under pressure amid worries about Europe — BHP Billiton fell to $31.72 and Rio Tinto to $54.65. By contrast, bank and financial stocks largely ignored those concerns: Commonwealth Bank rose to $50.82, ANZ to $21.77 and AMP to $3.91, as investors favoured financials that day.
Why did Qantas shares jump and what should investors know about takeover talk?
Qantas shares rose sharply to $1.075 after news the airline was monitoring potential takeover approaches. The company formed an internal taskforce to look at the situation, and a weakened share price had increased the prospect of private equity or other bidders taking an interest.
Should everyday investors treat the market rally after the bailout as a buying opportunity?
The article suggests caution. While the bailout lifted risk appetite briefly, investment professionals warned the move may be ‘just-in-time’ relief rather than a lasting solution. Everyday investors should weigh short-term rallies against ongoing uncertainties — including higher sovereign debt and upcoming events like the Greek elections — before making big allocation changes.
What macro events and data should investors monitor following this market reaction?
Investors should keep an eye on further developments in Europe (including Greek elections), NAB business survey updates, official GDP data revisions, and commentary from the Reserve Bank. The article notes UBS economists want a rethink of Q1 GDP in light of weakening business conditions, so those indicators are key for assessing economic trend and market risk.
How did analysts explain the mixed market reaction between resources and financials?
Analysts said European uncertainty hit resource names because global demand worries weigh on commodity-linked stocks, while the Spain rescue boosted risk appetite that helped financials. Still, commentators warned the positive effect may be temporary and investors are looking for more enduring policy solutions.
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