The Australian sharemarket rallied from the red after the Reserve Bank board meeting minutes conveyed as easing bias, stoking fresh demand for high yielding stocks.
The S&P/ASX 200 index opened 0.3 per cent down but rallied to close 3.2 points, or 0.06 per cent, firmer at 5251.2 points after the minutes said the Reserve board should “neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them”.
The Australian dollar fell to US93c on the news, but government 10-year yields still climbed 6.8 points to 4.063 per cent as global benchmark 10-year yields climbed seven points to 2.88 per cent ahead of the US Federal Reserve meeting that begins today.
Westpac chief economist Bill Evans said the reason for the easing bias was that the description of the health of the domestic economy remained “downbeat” and also because the level of the dollar was “still high”.
“Markets have moved to price out any more rate cuts,” he said.
“We believe that has been substantially motivated by developments offshore and is not consistent with the signals from the Reserve Bank.
“We still favour prospects for a cut in November while recognising that waiting until December would not be a policy mistake."
The Shanghai composite index was off 1.6 per cent at the close of the ASX after data showed China has not been immune from the emerging market jitters.
Foreign direct investment in the world’s second biggest economy grew 0.6 per cent in August, well short of the 12.5 per cent consensus forecast, and interbank funding rates pushed higher ahead of public holidays and the September-quarter end.
In Tokyo the Nikkei index dropped 0.7 per cent.
Overnight the US S&P 500 gained 0.7 per cent but it slipped through the day as market ebullience faded over the withdrawal of Lawrence Summers as candidate for the post of Fed chairman.
Attention is now firmly on the Fed’s policy statement tomorrow night with market consensus expecting a tapering of its bond purchases program by $US10 billion to $US20 billion.
However, markets will also be looking for triggers for further tapering, as well as the Fed’s growth forecasts for 2016.
Gold dropped $US10 to $US1313 an ounce, copper fell 0.6 per cent to $US7040 a tonne and yesterday spot iron ore lost 0.3 per cent to $US134.10 tonne.
The broader All Ordinaries index was up 3.5 points, or 0.07 per cent, at 5245.2.
On the ASX 24, the September share price index futures contract was two points lower at 5253, with 172,242 contracts traded.
Local banking stocks performed well after the Reserve Bank of Australia indicated it could make another interest rate cut, CMC Markets analyst Ric Spooner said.
“The dominant feature was buying of banks, possibly reflecting the RBA’s confirmation of an easing bias,” Mr Spooner said.
Further rate cuts could help banking stocks if they stimulate demand for home loans.
National Australia Bank added 58 cents to $34.68, Westpac gained 34 cents to $32.47, ANZ rose by 44 cents to $30.79, but Commonwealth Bank dropped 45 cents to $73.60.
“Overall it’s been a relatively steady day and markets are generally waiting for the Fed meeting,” Mr Spooner said.
Among the big miners, BHP Billiton was 13 cents lower at $36.14, Rio Tinto was down 64 cents at $62.76 and Fortescue Metals was up four cents at $4.62.
TPG Telecom was one of the day’s best performers, gaining 53 cents, or 14.3 per cent, to $4.23 after it substantially lifted its annual profit due to growing numbers of broadband and mobile phone customers.
Shares in coal miner New Hope dropped 29 cents to $4.00 as its annual profit fell because of the lower coal prices, a high Australian dollar and one-off writedowns.
Retailer Premier Investments was seven cents lower at $8.31, after it reported a strong rise in annual profit but said retail conditions would remain challenging in Australia.
Telstra gained two cents to $4.93.National turnover was 1.5 billion securities worth $4.6 billion.