Syrian war jitters returned to undermine global investor confidence and push the Australian sharemarket into the red while the better than forecast domestic GDP highlighted the skewed growth in the economy.
The S&P/ASX 200 index fell 35 points, or 0.67 per cent, to 5161.6 points after US Congressional leaders signalled they would vote in support of President Barack Obama’s call to retaliate against Syria’s use of chemical weapons on its own people.
The Australian dollar jumped 0.7¢ to US91¢ after June-quarter GDP rose 0.6 per cent, beating consensus forecasts for 0.5 per cent, and diminishing hopes for further rate cut relief this year.
However, Westpac economist Andrew Hanlan noted growth remained “sluggish”, with consumer spending “soft”, business investment declining and housing construction declining, leaving a potential gaping hole as mining investment plummets.
“This report serves to emphasise the weak state of the Australian economy,” he said.
“While the RBA maintained its neutral stance in yesterday’s statement from the Governor we expect that evidence of soft consumer spending; an unexpected contraction in housing construction; a third consecutive quarterly contraction in equipment investment will only emphasise to the RBA that more work is needed.”
Shrugging off the tepid growth, Australian government 10-year yields climbed 3 points to 4.022 per cent, following the surge in US 10-years to 2.87 per cent, just shy of the 2.92 per cent two-year, as markets continue to price in the likelihood of the US Federal Reserve tapering its bond purchasing program.
In Tokyo the Nikkei index was up 0.3 per cent, while the Shanghai composite index was up 0.2 per cent after the HSBC services PMI index rose further into the expansion zone at 52.8 points.
Overnight US stocks pared gains, with the S&P 500 index closing 0.2 per cent up after US House Speaker John Boehner and majority leader Eric Cantor said they supported the President’s call for a US-led strike on Syria.
Gold jumped $US20 to $US1412 an ounce as the war talk prompted investors scramble for hard assets, while copper slipped 0.3 per cent to $US7223 a tonne and spot iron ore was unchanged at $US138.70 a tonne on Tuesday.
The broader All Ordinaries index was down 32.4 points, or 0.62 per cent, at 5156.5. On the ASX 24, the September share price index futures contract was 32 points lower at 5158, with 24,044 contracts traded.
Lonsec senior client adviser Michael Heffernan said it may have affected the market.
"But if there is a decline should America strike Syria, it will be an event that will be short-term as far as its negative effect on the market."
The release of Australian gross domestic product (GDP) figures had a positive influence on trading, although not enough for the main indices to post gains.
"The GDP figures were a bit better than some people had anticipated, although growth was still pretty anaemic over the year as a whole,” Mr Heffernan said.
GDP rose 0.6 per cent in the June quarter, for an annual rate of 2.6 per cent - which was in line with the median market forecast but stronger than what some economists had expected.
Investors were also waiting for Australia’s federal election to pass, Mr Heffernan said.
"There’ll probably be a positive move in the market after that,” he said.
Among the major banks, National Australia Bank lost 32 cents to $32.59, ANZ dropped 28 cents to $29.77, Westpac reversed 32 cents to $31.62 and Commonwealth Bank was 27 cents lower at $73.28.
In the resources sector, BHP Billiton dropped 11 cents to $35.71, while Rio Tinto added 50 cents to $61.55.
National turnover was 1.4 billion securities worth $3.8 billion.