Spanish relief overshadows US gloom: Morning market insights

The New York Stock Exchange rose overnight as Spain sold more bonds than targeted, sparking relief in financial markets on both sides of the Atlantic.

The good news from Madrid overshadowed news of US declines in housing starts and factory production. Adding to the positive mood on Wall Street was the International Monetary Fund, which boosted its global growth outlook for 2012 to 3.5%, from 3.3%.

The market also managed to shrug off disappointing US economic reports, Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, told Bloomberg. His firm oversees $160 billion. “We’ve got data showing the German economy is growing strong, positive earnings surprises in the US and some good news out of Spain. There’s a lot of room for positive surprises, given how pessimistic things were.”

The S&P500 Index rose 1.50% to 1390.78 overnight. The Dow Jones Industrial Average was up 1.50% to 13115.50.

The NASDAQ Index gained 1.82%, or 54.42 points, to 3042.82.

US share gainers led losers by more than three to one. Apple (APPL: US) shares, which had dropped for five straight days, jumped 5% overnight.

Coca-Cola (KO:US) was up 2.08% after stronger than expected first-quarter results. The company reported revenues of $US11.14 billion ($AU10.71 billion) for the first three months of the year.

West Texas Intermediate (WTI) oil rose 1.23% to $US104.20 a barrel overnight.

Gold was flat, at 0.06% up, to be trading at $US1650.70 an ounce.

The Australian dollar was up overnight, buying $US1.0396 at 8.15am AEST as concerns about the Spanish bond sale evaporated. The Australian dollar is seen as a high-yielding but risky currency in global currency markets. When there are concerns about the global economy, investors sell it, and when things look rosy, investors buy it.

Europe

European share markets gained strongly overnight after the Spanish government sold all its bonds, putting paid to markets fears over the past week. Spain’s 10-year bond yield declined to 5.89% – safely under the 6-7% danger zone.

“There may have been some fear out there in the market that Spain could have had difficulty and that wasn’t the case,” Padhraic Garvey, head of developed market debt at ING Bank NV in Amsterdam, told Bloomberg, referring to the bond auction. “The bills got done. The spreads have come in a bit but they are still very wide.”

The London FTSE 100 closed up 1.78% to 5766.95. The German DAX was up 2.65% or 175.81 points to 6801.00. The European Stoxx50 index gained 2.86% to 2367.05.

Italian and Portuguese securities also advanced. Italy’s 10-year yield declined to a more sustainable 5.48%. But they are still an expensive source of funding for the ailing country’s economies compared to funding for stronger economies such as Germany, which pays almost zero per cent interest on its loans due to the market’s perception that money is safe there.

The latest German economic sentiment index came in unexpectedly high, also lifting the mood of investors. Germany’s 10-year bond yield increased four basis points to 1.76%, and the two-year note yield climbed two basis points to 0.15%.

“It brings a bit of relief after the recent auctions have been rather worrying,” said Markus Huber, a senior trader with TX Capital in the United Kingdom.