Rescue fund approval buoys shares


Published in the Business Day, September 2011

The local sharemarket is trading slightly higher after Wall Street gained on better jobs news and a key bailout fund for debt-ridden Europe cleared a major hurdle.

In mid-morning trade, the benchmark S&P/ASX200 index was up 13.7 points, or 0.3 per cent, at 4022, while the broader All Ordinaries gained 13.8 points, or 0.3 per cent, to 4081.7.

The energy sector led the gains, rising 1.4 per cent, while materials rose 0.5 per cent and financials added 0.2 per cent.

Wealth Within analyst Janine Cox said she had expected shares to lift higher than they did after Germany’s parliament ended weeks of speculation about Europe’s rescue fund overnight, by approving an expansion of the eurozone’s rescue fund after the local market closed.

She said the local bourse hadn’t reacted strongly, or Wall Street as strongly as she’d expected, with investors taking a wait-and-see approach to equities.

"There’s still a situation that six other countries have to vote yet (on the eruo-zone bailout) so it’s not a done deal yet so that’s why I think people are just waiting to see what happens," she said.

The federal government announced today the final budget outcome for 2010-11 was an underlying deficit of $47.7 billion.

That's a modest improvement on the $49.4 billion deficit forecast in the May budget. Treasurer Wayne Swan also vowed to stick to plans of returning the budget to surplus in 2012-13.

In other news, New Zealand's credit rating was cut one step to AA by Fitch Ratings, which cited the nation's high level of debt and persistent current account deficit.

Energy leads rise

Ms Cox said the local market was still settling down after a heavy sell-off of commodities over the past week.  

The energy sector led the market at the open, rising 0.68 per cent after world oil prices picked up overnight. 

Woodside Petroleum rose 20 cents to $32.34 and Santos added 7 cents to $11.34.  

Platinum metals producer Aquarius Platinum was the strongest stock on the ASX 100, jumping 8.1 per cent to $3.07. 

Grocery brand group Goodman Fielder was the weakest stock on the same index, plunging 18.9 per cent to $44.50 after announcing it had raised about $190 million through an institutional capital raising. 

Qantas gained half a cent to $1.43 despite Transport Workers Union employees walking off the job for a second time this week. More than 8000 domestic and international passengers’ flights were expected to disrupted on Friday by the strikes. 

Offshore overnight 

United States 

US stocks rose as lower-than-estimated claims for unemployment benefits and helped offset losses by consumer and technology shares. 

Key numbers: 

  • S&P 500 added 0.8% to 1160.40 
  • Dow Jones Indus Avg added 1.3% to 11,153.98 
  • Nasdaq Composite Index lost 0.4% to 2480.7 

Bank of America and JPMorgan Chase & Co. climbed at least 3 per cent as European lenders soared after German lawmakers backed an enhanced euro-region rescue fund. General Electric Co. gained 2.7 per cent, while Hewlett-Packard Co. added 2.5 per cent. 

The chances of the US economy averting a new recession got a boost with claims for jobless benefits falling to a five-month low last week and growth a touch stronger in the second quarter than previously estimated. 

Europe 

European shares rose after better-than-expected US economic data eased some market worries about slowing growth, prompting a reverse of early falls for a number of cyclical sectors and helping the index pare heavy third-quarter losses. 

Key numbers: 

  • London’s FTSE 100 lost 0.4% to 5196.84 
  • In Paris the CAC 40 added 1.1% to 3027.6 
  • In Frankfurt, the DAX added 1.1% to 5639.6 

While news of the successful German vote had been expected by many - with the euro and German Bund futures little moved - banks and insurers, among the most sold-off over the course of the debt crisis, got a sentiment boost. 

Asia 

Asian stocks rose, with the regional benchmark index heading for its biggest three-day gain since December 2009, as German lawmakers will vote to expand a bailout fund for Europe’s debt-stricken nations.

Key numbers: 

  • Japan’s Nikkei added 1% to 8701.2 
  • Hong Kong’s hang Seng lost 0.66% to 18011 
  • China’s Shanghai composite lost 1.1% to 2365.3 

The MSCI Asia Pacific Index rose 0.4 percent to 114.24 after having lost as much as 1.3 per cent. More than two stocks advanced for each that fell. 

The gauge is headed for an 8.4 per cent decline this month, extending a slump this quarter to 15 per cent, the steepest drop since the three months ended December 2008. Stocks have plunged amid concern the global economy is poised for another recession as Europe’s debt crisis worsens and US economic growth slows.

The dollar 

At 7am (AEST) the Australian dollar was trading at 97.82 US cents, down slightly from 97.95 cents from yesterday's. Since 5pm yesterday the unit has traded between 97.07 US cents and 98.86 US cents. In economic news on Friday, the federal government releases its final budget outcome.

The Aussie was also buying: 

  • 75.2 Japanese yen 
  • 71.2 euro cents 
  • 62.6 British pence 
  • $1.268 NZ 

Commodities

Energy 

World oil prices picked up on news that German lawmakers had approved an expansion of the eurozone's rescue fund, while sentiment was also lifted by hopeful economic data in the United States.

New York's main contract, West Texas Intermediate (WTI) for delivery in November, rallied 93 cents to $82.14 a barrel 

In London, Brent North Sea crude for November added 14 cents to $103.95 per barrel

Precious metals

Spot gold and silver prices rose for the second time in three days on demand for a haven amid concern that the European debt crisis will choke the worldwide economy.

Gold for immediate delivery rose $US2.63, or 0.2 per cent, to $US1,611.43 an ounce at 3:12 p.m. New York time. Earlier, the price gained as much as 1.6 per cent 

The metal has slumped 16 per cent from a record $US1,921.15 on Sept. 6 on investor sales to cover losses during a rout in global equity markets

Spot silver rose 49.88 US cents, or 1.7 per cent, to $US30.3675 an ounce 

Base metals

Copper ended lower, setting the stage for its worst quarterly performance since fourth-quarter 2008 as macroeconomic pressures continued to dog sentiment. For the second time this week, prices broke down below the $US7,000 per tonne level.

London Metal Exchange (LME) benchmark copper closed at $7,230 a tonne, only slightly down from a last bid of $7,250 tonne on Wednesday. 

In New York, the key December COMEX contract eased 0.05 cent to settle at $3.2460 per lb, after dealing in a wide 20-cent range between $3.08 and $3.289

Tin closed up $125 at $20,675 a tonne 

How we fared yesterday

Australian stocks fell, ending well off the day's lows as investors played it safe with just hours to go before the result of a German vote on beefing up the euro-zone's rescue fund. 

At the close, the benchmark S&P/ASX200 was down 31.2 points, or 0.8 per cent, at 4008.3, while the broader All Ordinaries index lost 29.8 points, or 0.7 per cent.


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