AN IMPROMPTU press conference, held about 5am Belgium time, lit a small fuse under the Australian sharemarket yesterday afternoon.
Leaders attending the European summit told reporters in the wee hours they had agreed to use the region's permanent bailout fund to recapitalise Europe's ailing banks, including banks from countries that had not already received assistance.
The agreement is aimed at enabling the eurozone's ?500 billion bailout fund to recapitalise struggling banks directly, without passing through national budgets and adding to the debt burden of struggling countries.
But this would happen only after a Europe-wide banking supervisory body was established, hopefully by the end of the year.
According to analysts, the reaction from Australian investors was a sign that expectations of anything being achieved at the summit were rock bottom: the benchmark index jumped 55 points in less than 30 minutes, while the dollar soared to almost $US102?.
The rally helped the S&P/ASX 200 close the week more than 1.1 per cent higher, up 46.4 points at 4094.6, for the first positive weekly close in a month.
The big banks and miners finished in positive territory, as investors returned to growth-linked stocks.
BHP Billiton rose 72? to $31.45 and Rio Tinto climbed $1.34 to $56.50.
The financial sector rose 1.2 per cent.
"It looks like the weaker countries succeeded in strong-arming Germany to [step away from] its one-sided view of pure austerity," said Wingate Asset Management's Chad Padowitz.
"I suspect Spanish and Italian bond yields will now come down, but the market's got a very efficient way of showing whether it thinks news is credible or not, so we'll see how that plays out in the next couple of days."
Nomura rates strategist Martin Whetton said the announcement came in the middle of what had been a quiet trading day and caused Australian bond futures to fall sharply.
"There was a rather dramatic
fall, which was exacerbated by
the liquidity," Mr Whetton said.
However, he said futures prices regained some of their losses during the afternoon.
"[The selloff] went too far and the market bounced back about
50 per cent of the fall."
Despite the optimism about the agreement, he said it was not enough to solve the eurozone's sovereign-debt crisis.
"It's still not over, it doesn't solve a whole lot just yet," he said.
In one of the stranger moments yesterday, David Jones shares jumped 33?, or 14.6 per cent, to $2.59 after the retailer received a $1.65 billion takeover offer from British-based EB Private Equity. The price surge was despite David Jones chairman Robert Savage saying he could find no public information on the bidder.
Frequently Asked Questions about this Article…
What triggered the sudden rally in the Australian sharemarket reported in the article?
An impromptu press conference at the European summit announcing leaders agreed to allow the eurozone’s permanent bailout fund to directly recapitalise struggling banks sparked the move. Investors reacted quickly — the benchmark jumped about 55 points in less than 30 minutes and the S&P/ASX 200 finished the week higher.
How did the eurozone summit news affect the S&P/ASX 200 and the Australian dollar?
The S&P/ASX 200 closed up 46.4 points at 4,094.6 — more than a 1.1% gain and the market’s first positive weekly close in a month. The Australian dollar also strengthened, rising to almost US$1.02 following the announcement.
Which sectors and major stocks benefited from the market rally?
Investors returned to growth-linked stocks: the big banks and miners finished in positive territory and the financial sector rose about 1.2%. Miners named in the article included BHP Billiton (up 72 cents to $31.45) and Rio Tinto (up $1.34 to $56.50).
What happened to Australian bond futures after the summit announcement?
According to a Nomura rates strategist quoted in the article, Australian bond futures fell sharply immediately after the announcement — a fall worsened by liquidity — but futures regained roughly half of that initial drop later in the afternoon.
Does the article say the summit agreement solves the eurozone sovereign-debt crisis?
No. The article quotes analysts saying the agreement prompted optimism but is not a complete solution. One strategist said “it’s still not over” and that the announcement doesn’t solve a whole lot just yet.
Why did David Jones shares surge, and what should investors know about that move?
David Jones shares jumped to $2.59 after the retailer received a reported $1.65 billion takeover offer from British-based EB Private Equity. The rise followed the takeover news even as the company chairman said he could find no public information on the bidder.
What did analysts say about the likely impact on Spanish and Italian bond yields?
Wingate Asset Management’s Chad Padowitz suggested weaker countries succeeded in shifting Germany’s stance and said he suspected Spanish and Italian bond yields would come down. He also noted markets will quickly test whether the summit news is credible in the coming days.
What is the main takeaway for everyday investors from this article’s market reaction?
The article highlights how fast-moving geopolitical or policy news — like the eurozone agreement — can trigger sharp market swings across stocks, bonds and currency. Short-term volatility followed the announcement, some losses were later recovered, and analysts cautioned that the news was optimistic but not a definitive fix to the wider crisis.
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