Bubbling global equity market exuberance lifted the Australian sharemarket to within a whisker of its six-year high but bond markets continued to reflect mounting concern over hidden market risks.
Following the record highs reached on Wall Street overnight, the S&P/ASX 200 index climbed 15.5 points, or 0.28 per cent, to close at 5527.2, well off the day’s high as iron ore prices fell.
Renewed compression in some global yields provided a relative value tailwind to stocks.
Last night sentiment was boosted by headline US durable good orders increase of 0.8 per cent that beat forecasts, driven by a surge in the volatile defence and transport component.
But US 10-year bond yields fell 2 points to 2.51 per cent, in line with the 1.2 per cent fall in non-defence capital goods orders that compounded uncertainty over the US growth recovery.
Although investors rejoiced at the headline rebound, durable goods levels remains well below the 5 to 10 per cent growth ranges prevailing in the run-up to the GFC and in the 1990’s.
US consumer confidence and housing data also beat forecasts, but markets dismissed falls in the Richmond and Dallas Fed surveys.
However, credit markets remained on high alert after Italian and Spanish 10-year yields reversed an early drop with the rebound in yields on heavy volume that signalled “real money” investors were exiting peripheral eurozone bonds.
Explaining the need for caution Westpac market strategist Graeme Jarvis said: “We have seen the (US) largest and most liquid bond market in the world push to lower and lower yields as the world protests and as the data nominally improves.”
“We have seen European peripheral bond yields jump for no apparent reason and in the case of Italy (the third largest bond market in the world) the move was accompanied by the biggest volume day in its history,” he said.
He noted that gold also tumbled $US34 to a four month low of $US1260 an ounce, before settling at $US1263/oz, on heavy volume.
“Volume of that kind has not been seen since gold was in free fall in mid-2013 when it fell over 15 per cent, he said.
Copper slipped 0.2 per cent to $US6930 a tonne, Dalian iron ore futures fell 2.2 per cent today and spot iron ore lost 0.5 per cent to $US98.10 a tonne yesterday.
The Australian dollar was little changed at US92.60¢, but resuming the safe-haven rally, Government 10-year yields dropped 3.2 points to 3.714 per cent.
The Shanghai composite index was up 0.6 per cent at the close of the ASX.
In Tokyo the Nikkei index was up 0.4 per cent.
Morgans client adviser Alistair McCorquodale said the local bourse had experienced two days of weak leads from the Northern Hemisphere amid low volumes.
“It’s come off towards the end of the day,” he said.
“Overall, after reasonably strong trading in Europe and the US we’ve carried on with some gains here.”
The big miners and major banks all closed in positive territory while retailers Woolworths and Wesfarmers were some of the worst performers.
Australia’s big four banks received a boost, led by Westpac which was 18 cents stronger at $34.50, ANZ had lifted 14 cents to $33.69, National Australia Bank rose 22 cents to $33.51 and Commonwealth Bank advanced 26 cents to $81.94.
But retailer Woolworths fell 44 cents to $37.45 as it considers selling its pubs and liquor stores.
Wesfarmers dropped 26 cents to $43.26 after its supermarket chain Coles opened up a new front in its battle with Woolworths, launching an overhaul of its liquor business.
Property developer Australand’s shares have fallen after coming out of a trading halt following rival Stockland increasing its takeover offer to $2.5 billion.
Australand had dropped three cents to $4.23 while Stockland lifted one cent to $3.88.
Poker machine maker Aristocrat Leisure was 17 cents higher at $5.34 after reporting a nine per cent rise in first half earnings and flagging strong annual profit growth.
The broader All Ordinaries index was up 15.9 points, or 0.3 per cent, at 5506.7.
The June share price index futures contract was 11 points higher at 5538, with 14,377 contracts traded.
National turnover was 1.4 billion securities worth $3.2 billion.