The Australian sharemarket pared yesterday’s rally as global bond investors thumbed their noses at US Federal Reserve officials warning benchmark US borrowing costs could rise as soon as March next year.
The S&P/ASX 200 index opened in the black but slipped throughout the session to close 19.2 points, or 0.35 per cent, down at 5445.1 as falling bond yields signalled conservative investors were expecting the end of US quantitative easing and possible rate rises next year to snuff out the fragile US and global recovery.
Last night the US S&P 500 slipped 0.1 per cent as US May consumer spending rose just 0.2 per cent, half the consensus forecast, and the Fed’s preferred inflation measure, the private consumption expenditure deflator, rose 1.5 per cent.
Investors were also unsettled by comments from St Louis Fed president James Bullard, a non-voting member and former monetary policy “dove”, that markets were mispricing rate rise risk and that the economy was strong enough to withstand an increase in short-term rates.
However, 10-year yields dropped 2 points to 2.54 per cent, dragging Australian 10-years 5.7 points down to a fresh one-year low of 3.531 per cent,
The Australian dollar rose US0.2¢ to US94.35¢.
Westpac strategist Graeme Jarvis said sentiment had also been hit by a news report that suggested the European Central Bank remained complacent about the stumbling eurozone economy and there was little likelihood they would embark on an asset buying stimulus program this year.
“That acknowledgement from two sources pushes back on crucial market beliefs,” he said. “It pushes out the expected time horizon of additional measures and it raises new hurdles to what was assumed a fairly flat glide path to (US) QE.”
He said the price action in bond markets reflected the belief that the ECB may allow Europe to “slip further into an economic hole” before any additional action will be taken.
The Shanghai composite index rallied from the red and was flat at the close of the ASX.
In Tokyo the Nikkei index fell 1.5 per cent as Japanese household spending plunged 8 per cent in May and consumer price inflation soared 3.7 per cent, dashing hopes the Bank of Japan could ramp up its stimulus plan.
Spot iron ore rose 0.7 per cent to $US95.30 a tonne yesterday, Dalian iron ore futures were up 0.9 per cent today, copper rose 0.6 per cent to $US6966 a tonne and gold firmed $US3 to $US1319 an ounce.
CMC Markets strategist Michael McCarthy said Australian shares had limped into the weekend, sliding into the red on low volumes.
“The gloss came off consumer staples stocks, and financial and industrial stocks were also caught in the downdraft,” Mr McCarthy said.
“Unusually for a Friday, the volatility index rose, suggesting creeping investor nervousness.”
Yesterday’s strong gains meant the market ended the week higher.
A higher iron ore price on Friday gave some miners a boost, with Fortescue Metals up eight cents at $4.55 and Rio Tinto up 16 cents at $60.06, but BHP Billiton lost eight cents to $36.42.
The banks lost ground in afternoon trade, with ANZ losing 30 cents to $33.60, Westpac dropping 26 cents to $34.17, CBA shedding 59 cents to $81.47 and NAB 21 cents weaker at $33.03.
Tatts Group shares were the biggest winners, adding nine cents, or 2.9 per cent, to $3.21, after extending its exclusive wagering deal in Queensland.
Tabcorp was the biggest loser, down 20 cents, or 5.6 per cent, to $3.40, after losing its legal attempt to be win compensation from the Victorian government after the expiration of its gaming machine licence.
The broader All Ordinaries index was down 17.7 points, or 0.32 per cent, at 5429.1.
The September share price index futures contract was 10 points lower at 5416, with 28,469 contracts traded.
National turnover was 2.3 billion securities worth $6.9 billion.