Market loses steam after brief rally

SHARES closed higher for the second straight day despite giving up early gains after a closer inspection of the latest economic growth figures.

By InvestSMART · 7 Jun 2012

By InvestSMART ·
7 Jun 2012

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SHARES closed higher for the second straight day despite giving up early gains after a closer inspection of the latest economic growth figures.

The benchmark S&P/ASX 200 index rose 11.6 points, or 0.3 per cent, to 4055.3 yesterday, while the broader All Ordinaries Index added 12.3 points, or 0.3 per cent, to 4104.7.

Among the major sectors, materials and energy gained 0.4 per cent, while financials inched up 0.2 per cent. Industrials fell 0.6 per cent and consumer discretionary stocks slipped 0.1 per cent.

Local stocks opened about 0.4 per cent higher, as investors took their cues from a positive night on offshore markets. The market then reacted positively to figures that showed the domestic economy grew a better-than-expected 1.3 per cent in the March quarter.

The Australian dollar leapt as high as US98.62? yesterday, from US97.43?, to last trade at US98.56?, bolstered by the surprisingly strong economic growth data that may lessen the urgency for further deep interest rate cuts. Against the yen, it jumped to 77.80 yen, more than a yen higher from early trade.

The sharemarket rally petered out in the afternoon as investors dug a bit deeper behind the headline numbers.

A Lonsec senior client adviser, Michael Heffernan, said that while the GDP data looked OK on the surface, it was not necessarily a true indication of how the economy was travelling.

"There was a bit of ebullience after the national accounts figures came out. However, closer analysis shows that the major reason why real GDP went up was because overall prices went down largely due to export prices falling," he said.

An IG Markets strategist, Stan Shamu, said the growth numbers prompted a sharp rise in the Australian dollar, whose gains in equity markets were capped as industrials stocks struggled, falling 0.6 per cent.

The big four retail banks ended mixed. ANZ rose 2? to $21.34, Commonwealth Bank gained 5? to $50.05, NAB dropped 30? to $22.25 and Westpac fell 24? to $20.35.

Qantas reached fresh lows as investors continued to react negatively to its shock profit downgrade on Tuesday.

The stock fell to a low of $1.10, before closing down 3?, or 2.6 per cent, at $1.125, extending Tuesday's 19 per cent decline.

Preliminary national turnover was 1.5 billion securities worth $4 billion, with 549 stocks up, 390 down and 406 unchanged.

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Frequently Asked Questions about this Article…

How did the S&P/ASX 200 and All Ordinaries perform after the brief rally?

The S&P/ASX 200 rose 11.6 points (about 0.3 per cent) to 4,055.3, while the All Ordinaries Index added 12.3 points (about 0.3 per cent) to 4,104.7, closing higher for a second straight day despite giving up early gains.

Which sectors led gains and which sectors fell during the trading session?

Materials and energy led the gains, each up about 0.4 per cent, while financials inched up around 0.2 per cent. Industrials struggled, falling about 0.6 per cent, and consumer discretionary slipped about 0.1 per cent.

Why did the sharemarket rally fade after the initial lift?

The rally lost steam after investors dug into the details of the latest GDP figures. Lonsec adviser Michael Heffernan noted that the headline GDP rise masked weaker fundamentals because real GDP rose largely due to overall prices falling (driven by lower export prices). IG Markets strategist Stan Shamu also said the sharp rise in the Australian dollar capped gains, especially as industrial stocks weakened.

How did the March-quarter GDP data affect the Australian dollar and investor sentiment?

Stronger-than-expected March-quarter GDP growth of 1.3 per cent boosted the Australian dollar — it leapt as high as US98.62¢ from US97.43¢ and last traded at about US98.56¢, and rose to roughly 77.80 yen. That currency strength influenced equity market dynamics and helped temper the rally.

How did the major Australian banks fare on the day?

The big four retail banks ended mixed: ANZ closed at $21.34, Commonwealth Bank at $50.05, NAB at $22.25 and Westpac at $20.35, with some banks up and others down during the session.

What happened to Qantas shares after its profit downgrade?

Qantas shares hit fresh lows following the shock profit downgrade. The stock fell to a low of $1.10 before closing down about 2.6 per cent at $1.125, extending Tuesday’s roughly 19 per cent decline.

What was the level of trading activity and market breadth during the session?

Preliminary national turnover was about 1.5 billion securities worth roughly $4 billion. Market breadth showed 549 stocks up, 390 down and 406 unchanged.

What should everyday investors take away from the market reaction to the GDP figures?

The article suggests caution: a headline GDP beat doesn’t always reflect stronger underlying conditions — much of the rise was tied to price movements rather than stronger demand. Everyday investors may want to look beyond the headline GDP number, consider sector-by-sector effects (for example, industrials struggled) and watch how currency moves and company-specific news (like Qantas’s downgrade) influence share prices.