The Australian sharemarket slipped ahead of the highly anticipated US Federal Reserve meeting tonight but ongoing demand for bank stocks limited losses.
Overnight Wall Street rose 0.4 per cent but the S&P/ASX 200 index lost 13.1 points, or 0.25 per cent, to 5238.1 points, with the release of US inflation data overnight calming fears the Fed tapering announcement would be at the higher end of consensus forecasts at $US20 billion.
The Australian dollar edged up to US93.50¢ as the US dollar eased against major currencies after US inflation rose just 0.1 per cent in August, 1.5 per cent year on year. This is well short of the Fed’s 2 per cent target, while new house building was flat, reflecting the impact of surging mortgage rates since May.
Australian government 10-year yields rose 1.1 points to 4.059 per cent and US 10-years dipped 4 points to 2.838 per cent, reflecting little fear the Fed would unnerve markets any more with its policy statement tonight.
Gold market jitters remained high and the precious metal fell $US20 to $US1295 an ounce, while copper jumped 1.1 per cent to $US7120 a tonne and spot iron ore tumbled 2.3 per cent to $US131.10 a tonne yesterday.
Royal Bank of Scotland currency strategist Greg Gibbs said there was a risk now that as Lawrence Summers was no longer in the running for Fed chairman that expectation would rise that the taper would be delayed, or not completed for longer, causing US Treasury yields to fall and emerging market currencies to rebound.
“However, having largely shifted course to anticipate the taper, I doubt the market will reverse course again unless it is given a real reason too,” he said.
“The sell-off in EM and rise in US Treasury yields started in May and accelerated in June/July when Janet Yellen was the main picture in the frame. As such, it appeared that the Fed was shifting course towards ending QE purchases over the coming year regardless.”
The Shanghai composite index was traded in and out of the red and was up 0.2 per cent at the close of the ASX as Shanghai interbank borrowing costs continued to rise, sparking fears of another hard lesson in cash management by the central bank.
In Tokyo the Nikkei index pared a 2 per cent rally to finish 1.4 per cent up.
The broader All Ordinaries index was down 14.8 points, or 0.28 per cent, at 5230.4.
On the ASX 24, the September share price index futures contract was 16 points lower at 5246, with 91,830 contracts traded.
IG market analyst Evan Lucas said lower iron ore prices had weighed on the big miners and contributed to weakness on the local market, but now it was a waiting game.
"All eyes will be on Ben Bernanke at 2am (Perth time) tomorrow morning,” Mr Lucas said.
Trading volumes remained low on Wednesday, down around 30 per cent on the long term average.
"It was really a dusty day without a huge amount of news out there,” he said.
Some analysts predict the conclusion of the US central bank’s two-day meeting will reveal the dilution of quantitative easing measures.
Among the big miners, BHP fell five cents to $36.09, Rio dropped $1.06 to $61.70 and Fortescue Metals Group shed 15 cents to $4.47.
In the energy sector Woodside shares were 31 cents lower at $38.43 while Santos shares closed flat at $15.00 after NSW environmentalists demanded information on waste water from eight new coal seam gas wells in the NSW Pilliga.
The banking sector was mixed after Reserve Bank of Australia assistant governor Malcolm Edey said talk of a local housing bubble was “unrealistically alarmist".
National Australia Bank fell four cents to $34.64, and ANZ dropped six cents to $30.73.
The Commonwealth Bank had added 38 cents to $73.98 and Westpac was up five cents $32.52.
WorleyParsons shares rose four cents to $23.07 after the engineering group won a contract to build an oil sands project in Canada.National turnover was 1.6 billion securities worth $3.9 billion.