The Australian sharemarket did its best to shrug off a weak session on Wall Street on Friday but investors could not ignore a sharp drop in iron ore futures that dragged the market back to break-even.
At the open, the S&P/ASX 200 index rallied from the red to a 0.3 per cent gain before falling again to close 5.1 points, or 0.09 per cent, up at 5536.1 as Shanghai Dalian iron ore futures plunged down 5 per cent (its daily limit) in the afternoon.
Chinese credit market jitters resurfaced as the yuan dropped to a 19-month low following week Chinese growth data released two weeks ago that showed the weakest nominal growth in almost two decades.
Analysts speculate the People’s Bank of China will allow the yuan to fall further to ease the pressure on the world’s second biggest economy by boosting exports, and this could pressure commodity stockpiles held as collateral for financing.
The Shanghai composite index was off 1.4 per cent at the close of the ASX following news that instead of ramping up stimulus measures Premier Li Keqiang had invited private investors to help finance railways, ports and waterworks to curb a blowout in regional debt.
In Tokyo the Nikkei index fell 1.1 per cent.
The Australian dollar was steady at US92.80¢ but government 10-year yields dropped 1.2 points to a seven-month low of 3.929 per cent as fears of global deflation swept through financial markets.
The US Federal Reserve is expected to taper its bond purchasing program by another $US10 billion to $US45 billion next week, but pressure is mounting on the European Central Bank to step in with its own asset buying program to avert deflation in the eurozone.
“Assuming the Fed tapers its asset purchase program to $US45billion next week, the ECB could announce a similar sized program of almost €30 billion per month over six months simply by progressively reducing the amount of SMP liquidity it sterilises through term deposits,” Westpac economist James Shugg said in a report.
“That could see the ECB increasing short-term liquidity through the second half of the year.”
Gold rose $US4 to $US1305 an ounce, copper slipped 0.1 per cent to $US6750 a tonne and Shanghai steel rebar futures tumbled 1.8 per cent, while on Friday spot iron ore dropped one per cent to $US111 a tonne.
CMC Markets chief analyst Ric Spooner said the local market had been fairly resilient in the face of overseas falls.
“The main reason for that is that we’ve seen support of some high-yielding stocks like the big four banks and the retailers following the good inflation figure last week which has some people thinking interest rates will stay down for longer,” Mr Spooner said.
He said the market had also experienced a delayed response after the Easter break.
Renewed tensions between Russia and Ukraine and disappointing earnings results from US bellwether stocks Ford and Amazon contributed to overseas market falls late last week.
Mining stocks came under pressure on Monday as the iron ore price continued to lose ground.
BHP Billiton fell 41 cents at $37.87 while Rio Tinto fell 92 cents to $62.06 and Fortescue Metals Group lost 22 cents to $5.12.
Gold miner Newcrest had gained 49 cents, or 4.8 per cent, to $10.74. Still, the ASX/200 held above the 5,500 point mark at near six-year highs.
In the banking sector Commonwealth Bank was up 56 cents at $79.45, ANZ was 27 cents stronger at $34.94, Westpac was eight cents better at $35.86 and NAB rose 18 cents to $35.99.
Meanwhile Goodman Fielder shares leapt 8.5 cents, or 15.5 per cent, to $63.5 cents after two potential Asian suitors said they would pursue their $1.27 billion takeover offer despite an initial rebuff from the Australian food maker.
The broader All Ordinaries index was up 0.6 points, or 0.01 per cent, at 5516.1.
On the ASX 24, the June share price index futures contract was flat at 5530, with 18,896 contracts traded.
National turnover was 1.4 billion securities worth $3.5 billion.