The Australian sharemarket snapped its three-day winning streak after US Federal Reserve chairman Ben Bernanke failed to “guide” markets with strong hints that further stimulus was on the cards, although investors retained some hope that he would be more forthcoming during his second speech to US lawmakers tonight.
Last night US markets initially slumped around 1.2 per cent after the Fed chairman’s speech, but they recovered to close up 0.6 per cent after he detailed future stimulus options during question time.
However, with gold and credit markets reflecting the growing view that the preferred route of quantitative easing was unlikely in the near term, miners dragged the S&P/ASX 200 index 17.2 points, or 0.42 per cent, down to 4123.6 points.
The selloff was led by Rio Tinto and BHP Billiton, despite both posting record iron ore volumes in the June-quarter, as doubts mounted over their abilities to sustain growth momentum amid a Chinese slowdown.
Underscoring the negative sentiment, yesterday the spot iron ore price broke through technical support, falling 70¢ to an eight-month low of $US129.40.
Copper initially pared its overnight 1.2 per cent loss but was little changed at $US7600 a tonne at midday, while gold dropped $US13 to $US1580 an ounce.
The Australian dollar fell to a low of $US1.0235 last night, then bounced to $US1.0330 before settling little changed since yesterday at $US1.03.
The Shanghai composite index was off 0.8 per cent at the close of the ASX, while Japan’s Nikkei index was down 0.3 per cent.
“The problem for markets now is that they are prone to disappointment should the Fed be seen to be procrastinating on August 1 following its next policy meeting,” National Australia Bank global head of currency strategy Ray Attrill said.
The Fed has attracted much criticism from Republican politicians in the past four years, and other analysts have noted that because of the looming US Presidential elections in November it was becoming increasingly difficult for the Fed to act without attracting negative criticism that it was favouring incumbent President Barack Obama over his Republican rival Mitt Romney.
Overnight Spanish bonds edged one point higher to 6.83 per cent as market attention switched to the US where yields across the curve to 30-years were near record lows, providing little justification for Dr Bernanke to justify further bond purchases as part of another quantitative easing programme.
The broader All Ordinaries index was down by 18.9 points, or 0.45 per cent, at 4156.4.
The September share price index futures contract was 19 points lower at 4087, with 23,718 contracts traded.Local investors did not buy Dr Bernanke’s message as Americans had because the Australian bourse was so resources-heavy and there were concerns about commodities demand, CMC Markets senior trader Tim Waterer said.
“We probably would’ve liked him to lean one way or another with QE3 (quantitative easing) in coming months,” he told AAP.“The market likes to deal in shades of black and white; grey is met with a selling approach as we’ve seen today.
“It was a tale of two halves in the market today with any buying momentum going towards financial stocks eking out modest gains.”Resources stocks, including mining and energy companies, finished more than two per cent weaker.
BHP Billiton shrank 61 cents, or 1.98 per cent, to $30.29, which is its lowest level since February 2009.
Investors were more concerned about the future including slowing growth in China and the dire economic situation in Europe, than the mining giant’s June quarter production report in which it lifted iron ore production to record levels.
Fellow mining major Rio Tinto faced the same issues, plunging to three-year lows, shedding $1.66, or 3.5 per cent, to $52.78.
The higher dividend paying banks fared better, with the biggest market value company on the ASX after BHP, Commonwealth Bank, the best performer up 35 cents to $55.25.
Westpac was nine cents stronger to $22.59, as was ANZ which lifted nine cents to $22.96, and National Australia Bank gained seven cents to $23.77.
Ports operator Asciano closed three cents stronger at $4.37 after wearing union criticism for plans to cut 270 jobs once a $348 million expansion of its container terminal at Sydney’s Port Botany is completed in 2014.
Gerard Lighting Group shares leapt up 21.5 cents to $1.02 on resumption of trading after it recommended shareholders accept a $186 million takeover offer from Lighting Group Australia Pty Ltd.National turnover was 1.4 billion securities worth $3.5 billion, with 355 stocks up, 519 down and 349 unchanged.
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