THE incredible volatility on the Australian sharemarket that has seen billions wiped from the value of shares in recent months snapped back in the other direction yesterday as investors added $16 billion to the value of local shares.
A surprising jump in employment figures a day after positive economic growth data left investors gobsmacked, and came amid renewed optimism on the fate of Spain's ailing banking system, helping the benchmark ASX 200 close 1.3 per cent higher at 4108.6 points.
The Australian dollar also recovered, surging back towards parity, trading at US99.39? by 5pm yesterday. It has now risen almost US3? since last Friday.
Surprisingly strong employment figures yesterday showed that the economy was in better shape than many believed. Bureau of Statistics data showed 38,900 new jobs were created in May.
Economists had been expecting a flat result.
These figures followed the release of data on Wednesday that showed the economy had grown 1.3 per cent in the March quarter, which was more than economists had expected, and after the Reserve Bank's 0.25 percentage point cut to the cash rate on Tuesday.
Those three factors proved positive for the Australian dollar yesterday, which surged towards parity with the greenback.
The dollar jumped US0.6? in response to the employment headline as speculators rushed to cover their short positions.
A senior currency strategist with Westpac, Sean Callow, said the dollar surged immediately after the jobs report, with extreme speculative positioning amplifying the price movements.
"The GDP number [on Wednesday] had to have an impact on the dollar," he said. "The currency had a terrible May, losing almost US7?, when there was evidence speculators had turned against it.
"If the dollar had spent the past six weeks rallying then I doubt we would have got such a big response to those jobs numbers."
Overall, the benchmark S&P/ASX200 index was up 53.3 points, or 1.3 per cent, at 4108.6, while the broader All Ordinaries index was up 52 points, or 1.3 per cent, at 4156.7.
The market however remains up just 0.2 per cent in 2012, while the dollar remains US9? below its recent peak.
The market has swung violently in recent months as investors weigh up Europe's ability to bail out its indebted members, with confidence ebbing and flowing with the latest economic statistics.
Confidence in the US recovery and a sharp slowdown in China have weighed on the mood of investors while fresh evidence of the European Central Bank's willingness to play a role in the continent's crisis has buoyed hopes.
Global sentiment was boosted last night as Spain was able to sell more than ?2 billion ($2.5 billion) worth of bonds in a critical auction.
The yield on the 10-year bonds increased to a little over 6 per cent in the sale, compared with 5.74 per cent in a similar auction in April.
However, the debt-heavy country managed to meet its full funding target, after the issue was over-subscribed.
The auction was a critical test of whether Spain could still access the global money markets after its borrowing costs have been at worryingly high levels for weeks.
Traders said local financial stocks appeared to be a direct beneficiary of the plan to recapitalise Spain's banks, accounting for 55 per cent of the index gains.
The big four banks all climbed higher, with ANZ the strongest, up 47?, or 2.2 per cent, at $21.81, while CBA rose 99? to $51.04, NAB 31? at $22.56, and Westpac 42? at $20.77.
Some traders suggested the run of gains was a sign that recent investor cautiousness had been overdone.
But a strategist with Deutsche Bank, Tim Baker, said much still depended on European policymakers.
"It's tricky to say [if the momentum will continue] because there are no more opinion polls ahead of the actual Greek election, they're in a blackout period," Mr Baker said. "Things look a bit more encouraging on the Spanish front, which looks a little closer to getting some help to recapitalise their banks, so that would be positive. But we're not there yet."
Meanwhile, Qantas shares remained in freefall after Tuesday's shock profit downgrade, failing to hitch a ride on the surging market.
The airline's stock shed a further 6.5?, or 5.8 per cent, to $1.06, closing at the lowest level since the company listed in 1995.
Frequently Asked Questions about this Article…
Why did the ASX 200 jump and add about $16 billion in value?
The ASX 200 rallied after a surprise string of positive data and improving global sentiment. A stronger-than-expected jobs report, above‑forecast GDP growth for the March quarter and renewed optimism around Spain’s banking situation combined to lift investor confidence. The benchmark S&P/ASX 200 closed about 1.3% higher at 4,108.6 points as local shares gained roughly $16 billion in value.
How did the May jobs report and March‑quarter GDP affect the Australian dollar and sharemarket?
Australia’s jobs data showed 38,900 new jobs in May and the economy had grown 1.3% in the March quarter — both stronger than economists expected. Those surprises prompted a rally in the Australian dollar (it moved toward parity, trading around US99.4 cents) and helped push the sharemarket higher as traders covered short positions and reassessed growth prospects.
What impact did the Reserve Bank’s 0.25 percentage‑point cash rate cut have on markets?
The RBA’s 0.25 percentage‑point cut to the cash rate was one of three near‑term factors (alongside the GDP and jobs surprises) cited as supporting the Australian dollar and equity gains. Together these domestic developments helped lift sentiment, although broader market moves still depended on global news, especially developments in Europe.
Why did Australian bank stocks lead the gains, and which banks benefited?
Financials were a major beneficiary of improved sentiment around Europe and plans to help recapitalise Spanish banks. Traders said local financial stocks accounted for about 55% of the index gains. The big four banks — ANZ, CBA, NAB and Westpac — all rose on the day, with ANZ noted as the strongest performer among them.
What happened in Spain’s bond auction and why does that matter for investors?
Spain was able to sell more than €2 billion in a key bond auction, though the yield on its 10‑year bonds rose to just over 6% (from about 5.74% in April). The issue was oversubscribed, which signalled to markets that Spain could still access global funding. That development eased some Euro‑zone fears and lifted global risk appetite — a plus for bank and equity markets worldwide.
Why did Qantas shares keep falling even as the market recovered?
Qantas remained under pressure after issuing a surprise profit downgrade earlier in the week. The airline’s stock continued to decline and closed at $1.06 — its lowest level since listing in 1995 — meaning it failed to participate in the broader market rebound.
Should everyday investors expect the market momentum to continue?
The article highlights caution: while recent data and a successful Spanish bond sale boosted sentiment, strategists warned that momentum still depends heavily on European policymakers and upcoming political events (for example, the Greek election period). That means volatility can remain high and future direction is uncertain.
How have global factors like the US recovery and China slowdown influenced recent Australian market swings?
Global forces are a key driver of swings in the Australian market. Confidence in the US recovery has supported risk assets, while signs of a slowdown in China have weighed on investor mood. Meanwhile, any fresh signs that European authorities will back troubled banks have quickly lifted sentiment — producing the ebb and flow seen in recent months.
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