Asian markets and the euro surged yesterday after eurozone leaders struck a surprise deal to allow the bloc’s bailout fund to directly support struggling banks and pledged US$150 billion (RM450 billion) to boost growth.
The agreement will allow emergency aid to crisis-hit Italy and Spain, was announced following marathon talks at an EU summit to save the ailing single currency.
Investors had low expectations from the EU summit, and the deal took Asian markets by surprise. But analysts warned against overoptimism.
“It is a bit of relief, but it is not a game changer,” Wee-Khoon Chong, Asia rates strategist at Societe Generale in Hong Kong, told Dow Jones Newswires. “The market is quite thin and it might have overreacted.”
Stocks in Tokyo closed higher, and the Nikkei 225 Index added 1.50 percent, or 132.67 points, to 9,006.78.
Chinese shares closed up, led by banks and metal stocks. The benchmark Shanghai Composite Index rose 1.35 percent, or 29.59 points, to 2,225.43.
Seoul climbed 1.91 percent, or 34.83 points, to 1,854.01, while Sydney was up 1.23 percent, or 49.8 points, at 4,094.6.
HONG KONG: Stocks outperformed most Asian peers yesterday, ending June and the second quarter on a high note as investors covered short bets after eurozone leaders unexpectedly agreed to help bring down Italy’s and Spain’s borrowing costs.
The benchmark Hang Seng Index soared 2.19 percent, or 416.19 points, to finish at 19,441.46. For June, the Hang Seng gained 4.4 percent.
“It’s mainly the euro headlines that spurred many to cover shorts today, not so much month-end or quarter-end window dressing,” said Tan Eng-Teck, a Singapore-based investment manager with Treasury Asia Asset Management.
SINGAPORE: Most Southeast Asian stock markets ended higher yesterday, led by large caps and commodities-linked stocks, as investors cheered some improving signs about debt problems in Europe.
In Singapore, the Straits Times Index closed 1.11 percent, or 31.63 points, higher at 2,878.45 points. However, the benchmark index suffered a 4.4 percent loss for the April-June quarter, the region’s worst.
Among the actives, Keppel Corp was 0.69 percent higher at S$10.28 and Olam International eased 0.28 percent to S$1.81.
KUALA LUMPUR: The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) failed in its bid to stay decisively above its overhead support of 1,600, failing to move in tandem with the better performances on regional stock markets.
The index closed at 1,599.15 yesterday, giving a week-on-week loss of 3.92 points, or 0.24 percent.
The FBM KLCI hit its intra-week high of 1,611.50 on Monday before rebounding to its intra-week low of 1,591.85 on Thursday, giving an intra-week trading range of 19.65 points.
The FBM KLCI’s 30 index-linked components paused to consolidate recent rebound gains when losers outperformed gainers by 16 to 9.
In other markets:
* Taipei rose 1.77 percent, or 126.67 points, to 7,296.28.
* Manila closed 0.19 percent, or 9.74 points, at 5,246.41.
* Jakarta rose 1.75 percent, or 68.00 points, to close at 3,955.57.
* Bangkok edged up 0.07 percent, or 0.79 points, to 1,172.11.
* Mumbai rose 2.59 percent, or 439.22 points, to 17,429.98.
EUROPE: European shares jumped to one-week highs yesterday after eurozone leaders agreed to take action to bring down Italy’s and Spain’s borrowing costs, surprising investors.
The FTSEurofirst 300 had risen 1.6 percent to 1,011.09 by 1042 GMT, after falling 0.5 percent in the previous session.
In late morning deals, London’s benchmark FTSE 100 index rallied 1.22 percent to 5,559.47 points, Frankfurt’s DAX 30 jumped 1.89 percent to 6,266.00 points and the Paris CAC 40 spiked 2.05 percent to 3,114.08.
Madrid rocketed 2.46 percent and Milan 2.36 percent, although they were off earlier highs.
“Stocks are not exactly rising at the moment – they opened with an upside gap, and that’s it for now. The eurozone is not dead, people are relieved,” said David Thebault, head of quantitative sales trading, at Global Equities, in Paris.
AMERICA: Financial markets around the world jumped higher Friday with the Dow Jones industrial average climbing 277 points, closing at 12,880, and the Standard & Poor’s had its best day of the year. Stocks advanced even further in Europe.
The Dow Jones industrial average climbed 277 points, and the Standard & Poor’s 500 index had its best day of the year. Stocks advanced even further in Europe, in strong and weak countries alike.
The price of oil posted its biggest one-day increase in more than three years, and other commodities shot higher — signs of hope that a deal in Europe will remove a big barrier to a healthier world economy.
In Brussels, leaders of the 17 countries that use the euro appeared finally to have found a broad strategy to fight a debt crisis that has hounded European governments and world investors for three years.
The leaders agreed to pump money directly into stricken banks, let some countries tap into rescue money without submitting to stringent budget requirements and, later, tie European governments closer in economic union.
David Kelly, chief global strategist at JPMorgan Funds, said it was becoming clear that European leaders will compromise to solve the crisis. One of the biggest stock gains Friday came in Germany, which took a hard line in earlier negotiations.
“The whole language is positive here,” he said. “Every time they’ve stared over the cliff into the abyss of a euro breakup, they’ve realized it’s much wiser to get closer together.”
There was a sign immediately that Europe’s latest plan was working: The cost for the troubled government of Spain to borrow money on the bond market fell dramatically, by more than half a percentage point, to 6.34 percent.
Previous market rallies tied to progress in Europe have proved temporary. But for the day, at least, global stock markets were jubilant
Traders sold U.S. Treasurys, sending the yield on the 10-year Treasury note up to 1.65 percent from 1.57 percent late Thursday, as demand decreased for ultra-safe investments and investors raised money to buy stocks.
Energy prices rose sharply because a cure for Europe’s debt problem would remove a big drag on global economic growth. The price of oil jumped $7.27 per barrel to $84.96. It was a gain of 9.4 percent, the biggest for oil since March 2009.
Seven of the 17 euro countries are in recession, and unemployment in euro countries is 11 percent. But if Europe gets its economy going, it will buy more goods and services from countries in Asia and the U.S.
Gold gained $54, the biggest jump since June 1, to $1,604 an ounce. Copper and silver both rose about 5 percent. Copper is a key material for economic expansion because of its use in electrical wiring, pipes and machinery.
The euro gained 2.3 cents against the dollar, to $1.2651.
On Thursday, economic reports from the United States were discouraging, and the Dow fell as much as 177 points. But stocks staged a big comeback late in the day and closed down modestly, partly because rumors swirled that European leaders were more conciliatory.
News of the deal in Europe broke overnight, and on Friday, stocks soared from the open. The Dow swung 430 points between its Thursday low and the high it reached late Friday.
Some market analysts remained cautious. Uri Landesman, president of Platinum Partners LLC, a New York hedge fund, said he expects more sharp leaps and dives this summer as traders speculate about Europe’s future.
“This Europe thing is going to trade up and down based on the news of the day,” Landesman said.
Kelly took a brighter view. Besides the Europe deal, he referred to a Greek election this month won by parties that support a European bailout, and the Supreme Court’s decision Thursday to uphold most of President Barack Obama’s health care overhaul.
“Uncertainty is diminishing,” he said. “These are all big question marks that have been out there, and as those question marks decrease, stock prices and interest rates increase.”
As the first half of the year ends, there are still reasons to worry about the world economy: China’s expansion is slowing, and U.S. employers have created far fewer jobs in March, April and May than the three months before. A report next Friday is expected to show another month of anemic U.S. job growth.
Because of the economic fears and a deep slump in May as Spain’s banks teetered near collapse, the S&P 500 lost 3.3 percent for the quarter. But the S&P started the summer strong. It rose 4 percent in June, its best month since February and its strongest June since 1999.
For the year, the Dow is up 662.53 points, or 5.4 percent. The Nasdaq composite index is up 12.7 percent.
For the day, the Dow closed up 277.83 points, or 2.2 percent, at 12,880.09. The S&P 500 rose 33.12, or 2.5 percent, to 1,362.16. The Nasdaq rose 85.56, or 3 percent, to 2,935.05.
Industrial and information technology stocks rose the most of the 10 industry groups in the S&P 500. Those companies would benefit from faster growth and stronger demand from Europe, a key trading partner.
Benchmark Currency Rates (Bloomberg)