The Australian sharemarket lost ground after weak eurozone GDP data sent a shiver of panic through global bond markets last night.
Following the one per cent drop on Wall Street the S&P/ASX 200 index dropped 31.8 points, or 0.58 per cent, to 5479 after investors dumped bonds in eurozone peripheral nations and scrambled for safety in US and German bonds.
Weak GDP data from France, Italy and Spain dealt a heavy blow to the bullish outlook priced into global equity markets and riskier corporate bond markets, sending investors scurrying for the sidelines.
The weak sentiment was compounded by the European Central Bank which downgraded its inflation forecasts and rumours Greece was planning to tax foreign bond holders.
Growth in eurozone powerhouse Germany rose 0.8 per cent, but France registered zero growth, Italy contracted 0.1 per cent and in the Netherlands it contracted 1.4 per cent.
“We had some good data, some bad data, some encouraging news, some uncomfortable news but at the end of the day (night) markets reverted in spades to the default position of a proper risk-off market,” National Australia Bank currency strategist Emma Lawson said.
Bond yields in Spain leapt 16 points to 3.02 per cent and Italian 10-years leapt 19 points to 3.10 per cent, while Italian stocks tumbled 3.6 per cent.
Safe-haven demand today saw Australian government 10-years drop four points to a 10-month low of 3.708 per cent.
The Australian dollar slipped US0.2¢ to US93.55¢.
In the US data was mixed as jobless claims dropped to a seven year low and consumer inflation edged up to 0.3 per cent, but industrial production fell 0.6 per cent, the Bloomberg consumer comfort index fell and the NAHB housing index also dropped.
The shanghai composite index was off 0.4 per cent at the close of the ASX
In Tokyo the Nikkei index fell 1.7 per cent as the yen rallied.
Gold dropped 4US6 to $US1297 an ounce, copper lost 0.5 per cent to $US6890 a tonne, spot iron ore dropped 0.7 per cent to $US102.80 a tonne yesterday and Dalian iron ore futures tumbled 2 per cent today.
Banks and resources stocks have pulled the Australian sharemarket lower following sell-offs overseas.
Bell Direct equities analyst Julia Lee said materials stocks had been some of the worst performers as commodity prices fell overnight.
"Trading today has been all about the banks and materials stocks dragging down the market,” Ms Lee said.
"Iron ore is not looking too good and nickel prices have experienced some big falls overnight."
Ms Lee said there had been a breakdown in the usual correlation between the bond markets and equity markets.
"That’s usually a bit of a red flag,” she said.
Equity markets were doing well as bond yields fell.
The local market had again struggled to hold above 5500 points after closing higher yesterday.
Weak European economic growth figures for the March quarter, a decline in US manufacturing activity and weak financial results from retail giant Walmart prompted a move to safe haven assets.
Mining giant BHP Billiton fell 18 cents to $38.08, Rio Tinto was down 86 cents at $61.95 and Fortescue Metals was 12 cents lower at $4.58.Nickel miner Western Areas fell 22 cents to $4.15.
Commonwealth Bank also slipped after hitting record highs this week, dropping 80 cents to $80.40.
Westpac lost 20 cents to $34.28, ANZ was down 26 cents at $32.94 and National Australia Bank was 10 cents lower at $33.49.
Financial adviser IOOF was a standout performer after revealing a takeover deal with smaller rival SFG Australia, with its shares adding 12 cents to $8.25.
The broader All Ordinaries index was down 31.3 points, or 0.57 per cent, at 5458.9.
The June share price index futures contract was 37 points lower at 5488, with 16,122 contracts traded.
National turnover was 1.1 billion securities worth $2.5 billion.