The Australian sharemarket finished a roller-coaster session in the red after a bearish outlook on iron ore sent miners tumbling and Cyprus rejected Europe’s demands for a bank deposit levy, keeping financial markets on edge.
The S&P/ASX 200 index opened almost one per cent down, rallied to break even on bargain hunting in the major banks, and then finished 20.1 points, or 0.4 per cent, down at 4967.3 points. Miners tumbled after Goldman Sachs analysts lowered their iron ore price forecast to $US80 a tonne by 2015, citing increases in seaborne supply expansion and increases in China’s domestic ore production.
Spot iron ore eased 0.1 per cent to $US134.40 a tonne, and steel rebar futures were up one per cent today.
Despite modifying the “one-off levy” so that depositors with less than 20,000 euro would be exempted, no Cypriot parliamentarians voted for the bill, leaving the country scrambling for funding solutions.
“Cyprus is looking for funding from everywhere, including Moscow. There is still the possibility Nicosia could receive bailout funds from the EU,” Forex.com analyst Chris Tedder said. “However, this would likely require Germany to back-down on the notion of tapping Nicosia’s bank accounts - an unlikely scenario at the moment.”
Many commentators have tried to play down the contagion risks, but an indicator of European and US bank funding stress, the FRA-OIS spread - the expected cash rate and expected 3month term interbank lending rates implied by the futures market - jumped the most since 2011 yesterday.
This implied the developments were impacting confidence in bank stability more broadly, Royal Bank of Scotland Greg Gibbs said.
“It suggests that the market is at least considering some risk that the Cyprus deal weakens the banking system more broadly, probably on the basis that bank deposit runs are now seen a bigger risk more broadly,” he said.
He added that one of the “broader brush conclusions” from the shock EU decision was that European countries were “losing appetite to fund bailouts and may draw a harder line for those deemed less systemically important.”
The Shanghai composite index was up 2 per cent at the close of the ASX on bullish forecasts for stocks and optimism tomorrow’s flash PMI manufacturing data would show the economy continued to expand.
Japanese stocks were closed for a public holiday.
The Australian dollar was little changed at $US1.0375 as government 10-year yields dropped 3.8 points to 3.512 on safe haven demand and an easier yield outlook following the surprise 1.5 per cent fall in February skilled vacancies and steep one per cent downgrade of January’s data to minus 1.7 per cent.
Overnight the US S&P 500 index slipped 0.2 per cent
Bloomberg reported a survey of economists showed the US Federal Reserve was expected to begin reducing its $US85 billion a month in bond purchases by the December-quarter because unemployment will have dropped to 7.3 per cent by then.
BHP and Rio, whose shares also trade in London, were also subject to a number of analysts’ downgrades during the overnight session.
BHP declined 93 cents, or 2.69 per cent, to $33.62, while Rio slumped $1.18, or 2.01 per cent, to $57.48.
Among the other iron ore focused miners, Fortescue Metals slipped nine cents, or 2.31 per cent, to $3.80, and Mount Gibson Iron dropped three cents, or 5.17 per cent, to 55 cents.
The weakness among mining stocks pushed the overall Australian market to a third consecutive day of declines, with the S&P/ASX200 closing at its lowest level since February 12.
"The main sore point for the market today came in the form of steep declines by mining giants BHP and RIO,” CMC senior trader Tim Waterer said.
"Essentially, the Goldman Sachs estimate cut for iron ore pricing had a predictable impact on the blue chip miners."
IG market strategist Evan Lucas said there was concern that there would be increased use of scrap metal in China, which would lead to lower steel production.
Among other stocks, retailer David Jones rose 12 cents to $3.08 despite its first half profit falling 14 per cent in challenging trading conditions.
Sydney Airport firmed three cents to $3.19 after it reported a 2.2 per cent rise in passenger numbers in February.
The broader All Ordinaries index was down 21.8 points, or 0.44 per cent, at 4,982.6 points.
The March share price index futures contract was down 30 points at 4960 points, with 102,173 contracts traded.National turnover was 2.1 billion securities worth $4.92 billion.
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