The Australian sharemarket pared yesterday’s losses after US Federal Reserve chairman Ben Bernanke soothed equity market jitters when he said the benefits of quantitative easing outweighed its costs, but currency and credit markets were less convinced as the US dollar continued to strengthen against most risk assets.
Following the overnight 0.6 per cent rally in the US S&P 500 index, the S&P/ASX 200 index closed 33 points, or 0.66 per cent, up at 5036.6 points, shrugging off the steep losses notched up in Europe on the Italian election stalemate.
Gold, $US20 up at $US1612 an ounce, and gold miners were the biggest gainers after Dr Bernanke reaffirmed the Fed’s increasingly controversial bond purchasing program would continue until there was “substantial improvement” in the labour markets.
However, the Australian dollar fell 0.5¢ to a low of $US1.02 as the Fed board minutes calling for the end to stimulus continued to resonate in some quarters, driving the US dollar higher, along with safe-haven demand following the stirring of eurozone jitters.
Pointing to a weak reading from the capital expenditure survey tomorrow and lower interest rates, Australian December-quarter construction work done fell 0.1 per cent, missing forecasts for 1.5 per cent increase, with a sharp 8 per cent drop in WA as engineering work declined.
Signalling fresh safe-haven demand, Australian government 10-year yields dropped 3.4 points to 3.347 per cent and last night Swiss 2-year yields traded below zero as the credit markets went on high alert on the Italian election uncertainty.
Analysts have cautioned that the election was effectively a referendum on Italy’s place in the eurozone, and the result indicated a lack of willingness to toe the official eurozone line.
“What this episode does again underline is that while the ECB is trying to buy time for governments to enact reform, the environment of continued enforced austerity and low growth leads to a more fractious political scene, with the rise of protest and anti-establishment parties across Europe,” Standard Life Investments director Jack Kelly said.
“The European financial system is still dysfunctional, with credit not flowing to intended recipients. The absence of Eurobonds still prompts uncertainty over peripheral sovereign debt.”
In Tokyo the Nikkei index was off 0.9 per cent and the Shanghai composite index was up 0.3 per cent.
The broader All Ordinaries index was up 31.3 points, or 0.62 per cent, at 5,053.1.
On the ASX 24, the March share price index futures contract was 40 points stronger at 5017 with 23,247 contracts traded.
City Index market analyst Peter Esho said Australian shares had been supported by local and international investors and regional markets remained resilient.
“Material stocks have been quite weak over the past few weeks and there’s some value buying coming through,” Mr Esho said.
Earnings reports showed share values were relatively stable, he said.
“There’s still some strong buying.”
A weaker Australian dollar had also prompted offshore interest in local equities and pessimism in Europe had not filtered through to the local bourse.
Locally, several major companies reported better than expected financial results, providing further momentum. AGL Energy provided the most upbeat earnings report, with first half profit significantly higher due to new assets, while its underlying performance also improved.
AGL shares were up 68 cents, or 4.5 per cent, at $15.87.
Shopping centre developer Westfield Group lifted its annual profit by 18 per cent, and its shares were up six cents at $11.14.
Building products group James Hardie reduced its forecast for full year earnings but its shares were up 15 cents at $9.50.
A majority of the company’s business is done in the US, where it said the housing market was improving.
QBE Insurance, which also has a large exposure to the US market, was another strong performer, up 43 cents at $13.18.
Engineering firm UGL disappointed the market, with a 53 per cent drop in first half profit due to restructuring costs. Its shares were down 60 cents at $10.30.
The four big banks were slightly higher, with Commonwealth the best performer, up 54 cents at $66.01.
ANZ was up 12 cents at $28.28, National Australia Bank was eight cents stronger at $30.03 but Westpac was down three cents at $30.20.
Among the miners, BHP Billiton was up 34 cents at $36.69 and Rio Tinto up 44 cents at $66.01.National turnover was 2.09 billion securities worth $4.26 billion, with 529 stocks up, 454 down and 381 steady.