The Australian sharemarket ended its losing streak after the European Central bank ratcheted up demand for yield by announcing negative deposit rates for bank excess reserves in the region.
The S&P/ASX 200 index climbed 27.1 points, or 0.5 per cent, to 5464 as bargain hunters snapped up the major banks and other high yielding stocks following the ECB’s radical move last night that also revived the global currency war.
The Australian dollar jumped US0.6¢ to US93.30¢ and the euro initially fell 0.8 per cent before reversing to trade 0.5 per cent higher at $US1.3660 after the ECB cut overnight lending rates by 10 points to 0.15 per cent and the bank deposit rate to minus 0.1 per cent.
Government 10-year yields edged up 0.5 points to 3.78 per cent today, while US 10-years slipped 2 points to 2.58 per cent and German 10-years dropped 2 points to 1.40 per cent.
ECB president Mario Draghi went a long way in delivering on market expectations by also announcing long term funding facilities for “targeted non-financial” borrowers, but only promised to implement quantitative easing after further investigations into the policy.
“These measures are a big step, the question remains is if the right corporates will use them,” National Australia Bank currency strategist Emma Lawson said.
“It will feed the liquidity monster that present markets crave, but only time will tell if it solves the European periphery’s problems.”
The Shanghai composite index was off 0.6 per cent at the close of the ASX after the Chinese banking regulator vowed to expand lending and other sources of finance to small businesses while attempting to curb unregulated shadow banking.
In Tokyo the Nikkei index was flat.
Gold jumped one per cent to $US1256 an ounce, copper fell 0.6 per cent to $US6740 a tonne, spot iron ore eased 0.3 per cent to $US94.20 a tonne yesterday and Dalian iron ore futures were flat today.
"The European Central Bank (ECB) decision to stimulate the economy over there has given a fillip to some stocks,” CMC Markets chief market analyst Ric Spooner said.
Mr Spooner said banks and other stocks offering good yields on the local bourse had lifted in particular.
Local investors believed that investors in Europe would now be chasing stocks with high yields around the world, in the wake of the ECB’s measures to cut interest rates and encourage banks to lend more money.
Mr Spooner said that on the negative side, more downward pressure on iron ore prices was hurting some of the big mining stocks.
The next catalyst for the Australian market would be US non-farm payroll figures for May to be released overnight and data on Chinese exports over the weekend.
However, a long weekend in most Australian states meant that local investors will have to wait until Tuesday to respond to the news from abroad.
Among the major banks, National Australia Bank strengthened 30 cents to $33.53, Westpac improved 35 cents to $34.55, ANZ advanced 44 cents to $33.67, and Commonwealth Bank lifted 82 cents to $81.77.
In the resources sector, global miner BHP Billiton was up four cents at $36.24, Rio Tinto was down 25 cents at $59.40, and Fortescue Metals lost 13 cents at $4.52.
The broader All Ordinaries index was up 23.8 points, or 0.44 per cent, at 5443.5 points.
The June share price index futures contract was 21 points higher at 5463 points, with 22,472 contracts traded.
National turnover was 1.49 billion securities worth $3.74 billion.