Markets soar after euro action

AUSTRALIAN shares ended sharply higher yesterday after European leaders agreed that eurozone banks could be

By InvestSMART · 30 Jun 2012

By InvestSMART ·
30 Jun 2012

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AUSTRALIAN shares ended sharply higher yesterday after European leaders agreed that eurozone banks could be

recapitalised without adding to government debt, soothing fears over growing credit strain in Italy and Spain.

Global markets cheered the

eurozone emergency action,

immediately soaring when the plan was announced early in the

afternoon Australian time.

"Just when everyone was

preparing for a boring end to the week and the financial year, a few EU summit headlines have jolted the market out of its malaise," said IG Markets analyst Cameron

Peacock.

The S&P/ASX 200 Index rose

49.8 points, or 1.2 per cent, to 4094.6, after trading in negative

territory in the morning session.

The dollar jumped as well,

climbing on the news to just shy of US102?, from as low as US99.96? in early morning trade.

CMC Markets chief market

analyst Ric Spooner said the news from the European leaders' summit was encouraging but did not mark the conclusion of the eurozone's woes.

"They've been positive

developments as I see them, but it is an incremental step," Mr Spooner said.

Most sectors ended sharply higher, with materials and energy leading the gains, rising 2 per cent and 1.6 per cent respectively, while financials rose 1.2 per cent.

Consumer discretionary stocks enjoyed a bumper day, after

upmarket retailer David Jones received a $1.65 billion takeover offer. The stock jumped 33?, or

14.6 per cent, to $2.59, while Myer climbed 7.5?, or 4.9 per cent, to $1.615 and Harvey Norman rose 54?, or 2.6 per cent, to $1.95.

The takeover bid helped market sentiment, Mr Spooner said, coming as it did at a time when prices were low. Such events were "a reminder that you need to be careful about getting out of things at very low prices because somebody else will take advantage of it", he said.

Among the big miners, BHP

jumped 72?, or 2.3 per cent, to $31.44 and Rio gained $1.34, or

2.4 per cent, to $56.50. Fortescue rose 2?, or 0.4 per cent, to $4.90.

Grocery wholesaler Metcash was one of the day's biggest losers,

slumping 9.9 per cent, or 37?, to $3.37 after coming out of a trading halt following a capital raising.

Fairfax Media rose 1.5?, or 2.8 per cent, to 55.5? after major shareholder Gina Rinehart threw down a challenge to chairman Roger Corbett.

News Corp was down 34? at $22.03 following Thursday's rally on plans to split the company.

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Frequently Asked Questions about this Article…

Why did ASX shares surge after the eurozone emergency action?

Australian shares jumped after European leaders agreed eurozone banks could be recapitalised without adding to government debt, easing fears over credit strain in Italy and Spain. Global markets cheered the move and the S&P/ASX 200 rose 49.8 points (about 1.2%) to 4,094.6 as sentiment improved.

Which ASX sectors led the gains and what does that mean for investors?

Materials and energy led the rally—rising about 2% and 1.6% respectively—while financials gained roughly 1.2%. Most sectors finished sharply higher, showing broad market participation; for everyday investors this can signal improving market risk appetite across resource and finance stocks.

How did the Australian dollar react to the eurozone headlines?

The Australian dollar jumped on the news, climbing to just shy of US102 cents from as low as US99.96 cents in early morning trade, reflecting a boost in risk sentiment and currency flows after the eurozone announcement.

What happened with David Jones and how did the takeover offer affect its share price?

David Jones received a $1.65 billion takeover offer, which pushed the stock sharply higher. The share price rose about 14.6% to $2.59, and the bid also helped lift overall market sentiment in the consumer discretionary sector.

How did major miners perform during the rally (BHP, Rio, Fortescue)?

Major miners benefited from the market uplift: BHP rose about 2.3% to $31.44, Rio Tinto gained around 2.4% to $56.50, and Fortescue increased roughly 0.4% to $4.90. Resource stocks were among the day’s winners.

Which companies were notable losers and why did Metcash slump?

Grocery wholesaler Metcash was one of the biggest decliners, slumping about 9.9% to $3.37 after emerging from a trading halt following a capital raising. Capital-raising announcements and trading halts can weigh on short-term share prices.

What corporate moves affected media stocks like Fairfax Media and News Corp?

Fairfax Media rose about 1.5% (to 55.5 cents) after major shareholder Gina Rinehart publicly challenged chairman Roger Corbett. News Corp was down roughly 3.4% at $22.03 following a recent rally linked to plans to split the company.

What investor takeaway did market analysts highlight after the takeover and market moves?

Analysts noted the takeover activity helped sentiment and served as a reminder not to sell out of positions at very low prices. Such events show that takeover bids can appear when prices are depressed, so investors should weigh the risk of exiting low-priced positions prematurely.