The Australian sharemarket remained on the back foot today but finished off its lows as bargain hunters wagered the US leaders would reach a budget deal to avoid a potentially catastrophic default on its debt next week.
Following a 0.9 per cent drop in the S&P 500 index domestic stocks lost 0.5 per cent at their worst, but the S&P/ASX 200 index bounced along with other Asian markets to close 11.7 points, or 0.23 per cent, down at 5149.4 points.
Markets remained on edge as US President Barack Obama reiterated that he would not negotiate over raising the debt ceiling, while US House leader said Republicans would only be agreement on a broader package of fiscal measures.
“The risk of the unthinkable is increasing – that the US reaches a point where it cannot make interest payments,” Royal Bank of Scotland currency strategist Greg Gibbs said.
“As it draws closer without signs of arbitration, the risk of a significant drop in global share prices is rising.”
However, an 11th hour agreement is still expected by most investors, while even the risks of no deal by October 17 have been downplayed as strategists discuss the ability of the US treasury to prioritise payments from tax revenue proceeds to meet bond payments and avoid a technical default until November 1 when the first heavy treasury outflow occurs.
US benchmark 10-year bond yields were steady at 2.62 per cent, but Australian 10-years eased 2.4 points to 4.069 per cent.
The Australian dollar was little changed at US94.30¢, having recovered from a dip to US93.90¢ late yesterday.
Chinese stocks resumed trade after a three day break and were up 0.5 per cent at the close of the ASX despite the HSBC services PMI index slipping to 52.4 points from 52.8 points, providing another signal the world’s second biggest economy was losing growth momentum.
ANZ commodity analysts said their China commodity index slipped 0.14 per cent last week and was down 4 per cent since peaking early last month.
“We need to continue to monitor steel prices in China. These have been sliding again since late-August, and are perhaps an early sign that Chinese growth is ebbing,” Mr Gibbs said.
In Tokyo the Nikkei index rallied from the red and was up 0.3 per cent at the close of the ASX despite Japan’s current account surplus unexpectedly shrinking to a record low in August as the Bank of Japan’s weak yen policy hit import costs.
Gold climbed $US13 to $US1325 an ounce, while copper was again little changed at $US7250 a tonne.
Lonsec senior client adviser Michael Heffernan said shares had not performed too badly despite the uncertainty created by the lack of progress among politicians in the US.
“It looks like excessive nervous tension (about the US) has been allayed somewhat,” he said.
Mr Heffernan said investors believed that US politicians would resolve their differences over policy eventually, and avert a possible US government debt default on October 17.
A debt default could be disastrous for financial markets.
“There’s a good confidence that the American politicians aren’t completely stupid,” Mr Heffernan said.
Several pieces of encouraging local economic data also soothed investors a little.
Job advertisements rose for the first time in six months, a sign that the labour market is stabilising.
Business confidence has also hit a three-and-a-half-year high.
Mr Heffernan said the focus on the US political deadlock could shift as US companies start to release their quarterly earnings reports, while local unemployment data is due out on Thursday.
The major banks closed mixed, with Westpac shedding 25 cents to $31.98, National Australia Bank losing 21 cents to $34.19, ANZ dropping two cents to $30.44, and Commonwealth Bank gaining 35 cents to $71.10.
In resources, BHP Billiton was two cents richer at $34.70, Rio Tinto lifted 25 cents to $60.25 and Fortescue Metals lost nine cents to $4.69.
Sims Metal Management firmed three cents to $9.68 after the company named former Harsco Corporation executive Galdino Claro as its new chief executive.
Takeover target Warrnambool Cheese jumped 72 cents to $7.18 as Canadian diary giant Saputo joined the takeover battle for the dairy producer, with a $390 million takeover bid. The broader All Ordinaries index was down 12.5 points, or 0.24 per cent, at 5148.1 points.
The December share price index futures contract was 15 points lower at 5142 points, with 22,680 contracts traded.National turnover was 1.34 billion securities worth $3.47 billion.