The Australian sharemarket pared yesterday’s gains as analysts began to question the US Federal Reserve’s credibility following its shock decision to maintain its controversial bond purchasing program.
In subdued trade the S&P/ASX 200 index slipped to close 18.9 points, or 0.36 per cent, down at 5276.7 points as the uncertain global growth outlook and market dependency on Fed support weighed on sentiment.
Analysts noted broad US economic data had changed little since the first tapering hints were dropped in May, suggesting the downturn in US housing from the blowout in mortgage rates, as well as fears of an emerging markets crisis were among the swing factors that prompted the Fed not to follow through with its warnings.
A Royal Bank of Scotland bond analyst said the decision showed a Fed that was increasingly “wishy-washy” about policy commitments.
“Therefore, at any point, tapering could be right back on the table again so the market needs a higher risk premium for this, i.e. the market can rally from here but not anywhere close to previous heights of QE,” he said.
US 10-year yields, the global benchmark for borrowing costs, pared Wednesday night’s late fall, bouncing 8 points to 2.75 per cent, while Australian 10-years rose 5.7 points to 3.42 per cent.
“We think the relief rally in markets after the Federal Reserve’s decision not to taper its asset purchase program offers one final opportunity for borrowers to fix rates and to set (currency) hedges in the AUD at very attractive levels,” ANZ strategists said.
The Australian dollar slipped 0.7¢ to US94.70¢ while gold eased $US3 to $US1362 an ounce.
In Tokyo the Nikkei index lost 0.4 per cent while Chinese markets remained closed for a public holiday.
The ongoing uncertainty was reflected in emerging Asian markets which failed to extend yesterday’s relief rally.
In Indonesia the Jakarta composite index was down 1.4 per cent and India’s BSE Sensex index fell 2.6 per cent after interest rates were unexpectedly raised to cool inflation
Overnight US stocks lost 0.2 per cent, with bank stocks falling following the $US920 million fine imposed on banking giant JPMorgan after it admitted to violating securities laws surrounding its $US6.2 billion London “whale” loss incurred in credit derivative markets last year.
The Australian ASX200 index was still up 1.1 per cent for the week.
IG chief market strategist Chris Weston said traders appeared to think stock valuations were stretched and were cautious about overseas events that threaten the global economy.
An anti-Euro party is tipped to feature strongly in Germany’s election this weekend and US leaders are in a fiscal standoff ahead of a deadline before the government runs out of money.
"Despite that if you look at central bank policies, you have still got to be in equities I think,” Mr Weston said.
The big miners closed lower with BHP down 29 cents at $36.39 after it opened a $US1.5 billion gas plant it says will supply 20 per cent of WA’s domestic gas for the next two decades.
Rio Tinto closed 72 cents off at $62.91.The major banks were also all weaker, with Commonwealth Bank 5.0 cents lower at $73.75, Westpac down 23 cents at $32.75, ANZ 17 cents worse at $31.09 and National Australia Bank dropping 17 cents to $34.86.
However fellow financial group Suncorp suffered the biggest fall of the 20 largest companies, dropping 16 cents, or 1.2 per cent, to $13.22.
Some traders headed for more defensive stocks, with supermarket owners Woolworths up 25 cents to $35.02 and Wesfarmers, which owns Coles, up 11 cents at $41.51.
National turnover was 2.5 billion securities worth $5.9 billion.