Market closes slightly lower
Investors initially looked on the bright side of Reserve Bank doubt over growth momentum when the dollar fell on the weaker yield outlook, but the Australian sharemarket dropped back to finish a choppy session in the red following soft Chinese investment data.
The S&P/ASX 200 index reversed a 0.4 per cent drop in early trade as the Reserve minutes erased lingering concerns over a rate rise this year but the index declined to close 11.6 points, or 0.21 per cent, at 5400.7 after a surprise fall in China fixed direct investment signalled a slowdown of "hot money" flowing into the country as the yuan was allowed to weaken this year.
Although Chinese credit market jitters have eased in recent months after officials blinked by announcing "mini stimulus" measures, the FDI data and US Treasury data suggest the world's second biggest economy was likely still undergoing a cash shortage.
Underscoring ongoing tight lending conditions in China, Dalian iron ore futures were off another 0.5 per cent today following the 2.2 per cent slump in spot iron ore to a fresh 20-month low of $US89.90 a tonne yesterday.
The Shanghai composite index was off 0.8 per cent at the close of the ASX after FDI declined 6.7 per cent in May, while Chinese holdings of US Treasury bonds fell for the third straight month in May, down $US8.9 billion from April, to $US1.26 trillion.
The Nikkei index was up 0.2 per cent.
The Australian dollar dropped US0.5¢ to US93.50¢ after the Reserve minutes "struck a more uncertain tone" by noting that "it was difficult to judge the extent to which (low interest rates) would offset the expected substantial decline in mining investment and the effect of planned fiscal consolidation".
Westpac economist Mathew Hassan said developments since the June meeting had generally added to dovish arguments - in particular the weaker than expected consumer detail in the GDP data, the absence of a rebound in consumer sentiment from its post-Budget fall in May, clearer signs of a housing slowdown and a further widening in the wedge between a rising dollar and falling commodity prices.
"While the Bank's goal of navigating the economy through its transition from mining to non-mining led growth is facing bigger challenges these still fall short of posing a big enough threat to 2015 forecasts to warrant further policy easing," he said.
Government 10-year yields dropped 3.9 points to 3.705 per cent while US 10-years eased one point to 2.59 per cent ahead of the US Federal Reserve board meeting starting tonight.
Gold fell 1.5 per cent to $US1264 an ounce an ounce while copper edged up 0.3 per cent to $US6711 a tonne.
More to come…
