The Australian sharemarket reversed an opening rally to a fresh high after the January trade deficit widened on an unexpected fall in exports and the US continued to draw investor attention away from Asia.
The S&P/ASX 200 index opened 0.3 per cent up, dropped to a 0.5 per cent loss, before closing down 7.6 points, or 0.15 per cent, at 5109.2 points after the deficit increased to $1.05 billion, double that of December and consensus forecasts, despite the sharp rebound in iron ore prices.
Clouding the March-quarter growth outlook, exports of iron ore and coal, Australia’s two key export commodities, both fell in volume and value terms.
Spot iron ore rose 0.4 per cent to $US145.80 a tonne yesterday while copper fell one per cent to $US7700 last night as LME stockpiles continued to increase, up 48 per cent for the year, and Shanghai stockpiles reached one-year highs.
On the upside, the AiG performance of construction index bounced to 45.6 points from 36.2 points, indicating a slower pace of contraction.
The Australian dollar fell 0.7¢ to $US1.0220 as the US dollar recovered lost ground against most currencies, before recovering to $US1.0250 as bargain hunters bought the sharemarket dip.
The greenback is widely reviled in financial markets because of the US Federal Reserve’s plans to continue with $US85 billion in monthly bond purchases for the foreseeable future, but creating a dilemma for investors, in order to buy surging US stocks, they also need to own US dollars.
One set of longer term investors are also positioned for a US dollar resurgence 18-to 24 months into the future when the Fed begins to withdraw liquidity from the financial system, while another set of investors see safe-haven driven greenback strength from resurgence of credit markets jitters.
“The era of rapid China expansion and globalization is mature; the risk is high that its long period of rapid expansion and drift into capitalism has exposed it to the pitfalls of mispriced credit risk and credit expansion,” Royal Bank of Scotland currency strategist Greg Gibbs said.
“The EUR must go lower if it is to survive, without growth in the periphery the people will eventually kick out their governments.”
“The US dollar will rally now because if China or Europe falters we will need its safe-haven status. It will rally now because Japan and the UK are two steps behind and expanding their QE. The US dollar will rally now to break the back of the bearish sentiment that has been over a decade in the making and has become too consensus.”
In Tokyo the Nikkei index was up 0.7 per cent while the Shanghai composite index was flat at the close of the ASX.
Last night US stocks were slightly firmer after the volatile ADP payroll report beat forecasts, but the bullish sentiment was capped by a 2 per cent drop in January factory orders.
The broader All Ordinaries index was 7.8 points, or 0.15 per cent, lower at 5,123.1. On the ASX 24, the March share price index futures contract was down 11 points at 5,111 with 26,813 contracts traded.
Options XPress market analyst Ben Le Brun said the local market had bounced back in afternoon trade as investors looked ahead to central bank meetings in Europe and Japan.
“It’s been the resources and materials that have held up quite well and there’s been some paring back of losses in the financial space,” Mr Le Brun said.
He said the local bourse could have finished much lower after losing ground in morning trade. Some traders had made pre-emptive moves in anticipation of quantitative easing announcements, he said.
“That could potentially lift risk asset prices,” Mr Le Brun said.
“But investors are entitled to be a bit nervous.”
Market watchers are waiting for the release of central bank commentary from the European Central Bank, Bank of England and the Bank of Japan overnight.
Locally, among the major banks, Commonwealth Bank was 37 cents higher at $69.68, National Australia Bank was up 23 cents at $31.06, ANZ dipped 22 cents to $29.01, and Westpac backtracked 37 cents to $31.29.
In the resources sector, BHP Billiton was flat at $35.82 and Rio Tinto added three cents at $63.23.
Telco Telstra reversed three cents to $4.54 as it sought to raise one billion euros ($A1.28 billion) through a bond issue.
Southern Cross Austereo retreated four cents to $1.65 after it sold two Queensland radio stations to parties associated with music industry veteran Glenn Wheatley for $17.75 million.National turnover was 1.4 billion securities worth $3.9 billion.
The new magazine for a new generation of West Australians.Click here to download the current edition »
All the latest market figures from Australia and the world.Click here »
'The West Australian' is a trademark of West Australian Newspapers Limited 2013.
All rights reserved.
Select your state to see news for your area.