Asian markets rallied early Monday and the euro jumped higher on Spain's bank
bailout, while sentiment was also boosted with Chinese economic data that was
less bad than some had feared.
Investors welcomed the weekend news that Spain secured a EUR100 billion ($125
billion) loan to bolster its banking system, which makes the country the fourth
and largest euro-zone economy to be rescued by its euro-zone partners.
Along with the forthcoming Greek elections, concerns relating to the health
of Spain's banking system have been one of the dominant themes coming out of
Europe in recent weeks, and the bailout provided an immediate boost to market
sentiment.
"It's tempting to say that with the Spanish aid deal, the worst of the crisis
is now behind us," said CLSA equity strategist Nicholas Smith in Tokyo.
Stocks rallied early in the day. Japan's Nikkei climbed 2% and Hong Kong's
Hang Seng Index gained 2.1% while South Korea's Kospi was 1.6% higher.
Singapore's Strait Times Index rose 1.4% and the China Shanghai Composite was up
0.3%.
In recent sessions, stocks have managed to stage what appears to be a
sustained rally, pulling themselves off from the floor. The Nikkei and the Hang
Seng Index are 4% and 3.8% respectively above their year-to-date lows. But
traders could become cautious again ahead of the Greek election later this week,
and markets still have a long way to go before they return to the peaks: the
Nikkei remains 15.8% off its year-to-date high, while the Hang Seng is 12.5%
lower.
The euro bounced back on the Spanish developments, climbing to $1.2634,
compared to $1.2517 late on Friday in New York, and compounding the 0.7% gain it
made last week.
The other main development over the weekend was China's economic data for
May, which still pointed to a weakening economy, but was not as bad as some
expected. China made a surprise cut to interest rates ahead of the data, which
was taken as a signal by the market that May's figures were going to be very
bad, and was partly to blame for a sell-off on Friday.
The most notable figure was inflation, with growth in the consumer price
index much lower than expected, at 3%. This was taken as a positive because it
potentially gives Beijing more space for further policy easing.
The improved risk sentiment was reflected in the performance of Asian
currencies. The dollar gained to 79.60 yen early in Asia compared to 79.47 yen
on Friday. The Australian dollar edged closer to parity with the dollar, at
$0.9980, although a holiday in Australia on Monday is expected to keep the
trading volume of the currency low.
China data also helped the price of oil, after China's crude imports reached
a record high in May, which is probably due to stockpiling and anticipation of
increased output after a round of refinery maintenance. Oil was up 2.3% early on
Monday, at $85.99 a barrel.
Hong Kong-listed Chinese banks rose on Monday, recovering after heavy selling
on Friday as investors became concerned that deregulation could damage the
sector's net interest margins. The gains however underperformed the broader
market rally: Industrial and Commercial Bank of China regained 1.2% after losing
4.9% on Friday, while China Construction Bank added 0.8%, after a 4% drop at the
end of last week.
China Unicom rose 4.6% in Hong Kong, following news that its parent will buy
a 4.6% stake in Unicom from Spanish telecoms company Telefonica SA for around
EUR1.13 billion.
Also in Hong Kong, Chinese developer Greentown China soared 36.5% after
placing new shares and convertible bonds to Wharf. The Hong Kong developer will
become Greentown's second-largest shareholder, which analysts believe could
provide greater clarity on the company's long-term cash flow management. Wharf
however, fell 2.7%.
-Write to Daniel Inman at Daniel.Inman@wsj.com
