The Australian sharemarket fell for the third straight session after tumbling iron ore prices knocked miners and civil war in Iraq drove oil prices higher, prompting a scramble for safe-haven assets.
The S&P/ASX 200 index dropped 23.7 points, or 0.44 per cent, to 5405.1 but finished off the day’s low as Chinese markets shrugged off the threat to global oil supplies following the release of better than forecast Chinese lending data last night.
Brent crude oil jumped to a nine-month high of $US113.20 a barrel after radical Islamist groups seized major cities in the oil rich north of Iraq, prompting Prime Minister Nouri al-Maliki to request support from the US.
The Shanghai composite index was up 0.9 per cent at the close of the ASX after Chinese money supply growth of 13.4 per cent beat forecasts and new lending rose to 840 billion yuan ($143 billion) in May, up from 750 billion yuan in April.
Later, displaying the uncanny knack economists have in forecasting Chinese data, as opposed to regular big misses with US data, Chinese May retail sales growth of 12.1 per cent beat forecasts for 12 per cent, while industrial production of 8.7 per cent was exactly in line with forecasts,
In Tokyo the Nikkei index rallied from the red to gain 0.8 per cent.
The Australian dollar was steady at US94.20¢ but Government 10-year yields dropped 3.8 points to 3.785 per cent to follow the 5 point slide in US10-years to 2.60 per cent.
US long duration yields dropped last night following strong demand at an auction for 30-year bonds that priced below the market, indicating solid “real money” demand for safe-haven assets and lack of faith in optimistic forecasts.
The US growth outlook was further dented by lacklustre US retail sales growth of 0.3 per cent in May that undermined expectations the world’s biggest economy was recovering strongly from the winter slowdown.
Economists have further revised down US March-quarter GDP growth forecasts to 2 per cent, well off the initial minus 0.1 per cent read and subsequent minus 1.4 per cent number, while data since has continued to disappoint.
“A bounce in activity following this very weak outcome is almost guaranteed,” Westpac economist Elliot Clark said. “But, in considering available partial data for (the June-quarter), there is little to justify expectations of a robust uptrend in underlying momentum taking hold.”
This deteriorating outlook is reflected in metal prices where the LME index tumbled 2.2 per cent over the past week.
Copper fell 0.8 per cent to $US6630 a tonne and gold jumped $US10 to $US1272 an ounce, while spot iron ore fell 2.2 per cent to $US91.50 a tonne yesterday and Dalian iron ore futures rallied from a one per cent decline to trade 0.2 per cent off at the close of the ASX.
CMC chief market strategist Michael McCarthy said two key factors were in play on Friday.
“First of all the situation in Iraq - that’s where most traders are focused,” Mr McCarthy said.
“The other is iron ore prices reaching more than 12 month lows in trading last night.”
In Iraq, Islamic militants are marching towards Baghdad, after they captured a town to the north of the capital.
The escalating violence has hurt global risk sentiment and sparked concerns the conflict could disrupt Middle East oil supplies, causing US markets to slump overnight and US oil prices to spike to a nine-month high.
Mr McCarthy said the situation in Iraq had boosted energy and gold stocks but had the potential to disrupt energy supplies and cause a further spike in oil prices.
That would disrupt industry, particularly in Europe, which already had an economy in a fragile state.
Mr McCarthy said Chinese economic data released on Friday, including industrial output and retail sales, had little impact on the local bourse.
Among the iron ore miners, Fortescue Metals fell 27 cents to $4.06, Atlas Iron dropped 2.5 cents to 59 cents, and Mt Gibson dumped three cents to 68 cents.
In the gold sector, Newcrest Mining gained 17 cents to $9.88, and Resolute Mining picked up two cents at 62 cents.
Oil and gas producer Santos rose 15 cents to $14.66, and Woodside Petroleum jumped 80 cents to $42.79.
Airline Virgin Australia and beverages supplier Coca Cola Amatil were traded heavily on Friday. Both stocks had more than 30 million shares changing hands.
Mr McCarthy said the trading in Coca Cola Amatil shares suggested an overseas participant.
He said the volume of trading in Virgin Australia shares was most unusual given that the average daily trading volume was about 1.5 million shares.
Coca-Cola Amatil was four cents lower at $9.10.
Virgin Australia was up 2.5 cents, or 6.17 per cent, at 43 cents.
The broader All Ordinaries index was down 24.2 points, or 0.45 per cent, at 5383.7 points.
The June share price index futures contract was 26 points lower at 5405 points, with 50,064 contracts traded.
National turnover was 308.4 billion securities worth $1.7 billion.