The Australian sharemarket dropped back to test key technical support again after escalating conflict in Iraq and tumbling Chinese consumer confidence topped a long list of factors stoking investor unease.
Following the negative lead from Wall Street the S&P/ASX 200 index dropped one per cent in early trade but bounced off the 5380 support level to close 30.8 points, or 0.57 per cent, at 5402 as iron ore futures and Chinese steel prices firmed, triggering bargain hunting.
US stocks reached a record high last night but retraced to close below the lows of the past three days, completing a bearish key-day reversal pattern, with the deployment of US deployed troops in Iraq one catalyst.
“It is the first sign that the bulls that have been in charge for so long may be losing control,” Westpac strategist Graeme Jarvis said. “New highs could not be sustained and then the buyers were overrun by sellers who managed to close the market lower than the previous day’s low. Nasty price action.”
After soaring 270 per cent over the past two years, Dubai stocks slumped 8.5 per cent yesterday, despite it being upgraded by MSCI from a “frontier” market to an “emerging” market.
Two days of heavy losses extended the decline to 27 per cent since its peak and headlines about construction company Arabtec’s financial difficulties triggered a sense of déjà vu back to 2009 when trouble in the region signalled the start of sovereign debt crises that spread to Europe.
Safe haven demand saw Australian Government 10-year yields fall 6.5 points to a fresh one-year low of 3.573 per cent and US 10-years drop 5 points to 2.58 per cent, despite better than forecast US house sales and US Federal Reserve Philadelphia President Charles Plosser suggesting interest rates could rise sooner than the market thinks.
The Australian dollar fell US0.7¢ to US93.60¢ as a 1.3 per cent fall in skilled job vacancies in May underscored the weakening growth outlook.
The Shanghai composite index was off 0.5 per cent at the close of the ASX after the Westpac MNI consumer confidence index fell 7.1 per cent, indicating consumers underwent a “reality check” in June despite mini stimulus measures.
Westpac’s senior international economist Huw McKay commented that “Chinese consumers have reconsidered the more upbeat posture they assumed in May. While optimists continue to outnumber pessimists by a comfortable margin, precautionary savings are again on the rise as a proportion of income, with consumers now assessing that their own finances are on somewhat shakier ground.”
In Tokyo the Nikkei index was off 0.6 per cent.
Dalian iron ore futures bounced 0.9 per cent while spot iron roe eased 0.1 per cent to $US93.30 a tonne yesterday. Copper slipped 0.3 per cent to 6865 a tonne and gold reversed a $US10 rally to $US1324 an ounce to trade $US12 off at $US1312/oz.
The major banks weighed on the market for a second straight day, but falls were also posted by miners, gas and oil producers and health care companies.
“The focus is still on the conflict that we’re seeing in Iraq and the concerns in Ukraine and that’s keeping markets a little edgy and volatile at this point,” CommSec market analyst Steven Daghlian said.
Among the banks, Westpac lost 32 cents to $33.83, National Australia Bank shed 28 cents to $32.80, Commonwealth Bank dropped 56 cents to $81.02 and ANZ was 20 cents weaker at $33.42.
The big miners posted small falls, with Rio Tinto dropping 46 cents to $59.07 and BHP shedding 25 cents to $36.21, while Fortescue Metals was steady at $4.36. Gold miner Newcrest dropped 26 cents to $10.55 as the price of the precious metal weakened.
Elsewhere, property developer Lend Lease dropped 50 cents, or 3.7 per cent, to $13.12, despite saying the sale of its interest in an upmarket UK shopping mall will boost its 2014 net profit by 45 per cent.
Treasury Wine Estates was a standout, adding 24 cents, or five per cent, to $5.07, after outlining major changes to its operations and structure that will cost $260 million.
The broader All Ordinaries index was down 28.3 points, or 0.52 per cent, at 5386.8.
The September share price index futures contract was 35 points lower at 5353, with 29,024 contracts traded.
National turnover was 2.15 billion securities worth $5.86 billion.