The Australian sharemarket surrendered early gains to hit a three-month low as investors rotated out of the major banks and into miners, while the Reserve Bank decision to leave rates on hold offered no support.
The S&P/ASX 200 index kicked up to a 0.3 per cent gain after the official Chinese PMI index met forecasts for a mild expansion, but it dropped off to close 19.8 points, or 0.37 per cent, down at 5375.9 as the global rebound narrative faltered.
The global growth outlook was undermined by a fall Japan’s Tankan business survey to a nine-month low, a drop in South Korea’s PMI index to a 10-month low and a deceleration in Australia’s AiG PMI manufacturing index to 48.9 points from 49.2.
The Australian dollar rose US0.4¢ to US94.60¢ after the Reserve said rates would stay low for an extended period and painted a benign, below trend growth outlook, while acknowledging an uptick in business lending.
Government 10-year yields rose 3.5 points to 3.577 per cent as the rebound in the ANZ Roy Morgan consumer confidence index ran out of steam.
“Westpac has been of the view that there will be no change in rates until increases occur in the second half of 2015,” Westpac chief economist Bill Evans said.
“Today’s statement gives us no reason to alter that view.”
The Shanghai composite index was off 0.1 per cent at the close of the ASX as the Chinse PMI edged up to 51 points.
In Tokyo the Nikkei index was 1.1 up per cent as the yen weakened following the drop in the Tankan and rise in Japan’s PMI index.
A UBS economist told Bloomberg a lack of confidence about the outlook among small and medium sized Japanese companies, especially non-manufacturers, indicated wage growth was unlikely to spread broadly as the Japanese government hoped.
Dalian iron ore futures dropped 0.5 per cent following the 1.2 per cent fall in spot iron ore to $US93.80 a tonne yesterday, while copper jumped 1.1 per cent to $US7020 a tonne and gold climbed $US11 to a three-month high of $US1327 an ounce.
“A key concern is whether the growth in seaborne iron ore supply from Australia can be absorbed if steel demand in China cannot grow at the same rate,” ANZ commodity strategists said.
“Any weakness in Chinese steel demand in the second half is likely to come from a slowdown in residential construction, as falling residential property prices potentially slow sales and property development.”
Big falls by the banks have caused the share market to lose ground on the first day of the new financial year.
Banks were in negative territory from early in the session, and weakened further in afternoon trade following positive economic data out of China and the Reserve Bank’s decision to leave the cash rate on hold yet again.
“The banks have just been slammed today,” IG markets dealer Chris Weston said. “There doesn’t seem to be a red flag for that to be fair.
“I wouldn’t be surprised if there is a fund who have just liquidated banks on the first day of the new month and new fiscal year.”
Investors may also have rotated into the resources sector as expectations of strong economic growth in China continue to grow, he said.
Chinese manufacturing activity expanded at its fastest pace so far in 2014 in June, new data showed.
No change in the RBA’s commentary on the Australian dollar fuelled a rise in the local currency, and that may have also detracted from equities trading, Mr Weston said.
ANZ lost 50 cents to $32.84, Westpac shed 50 cents to $33.38, National Australia Bank dropped 48 cents to $32.30 and Commonwealth Bank was 91 cents weaker at $79.97.
In resources, Rio Tinto gained $1.14 to $60.45, BHP Billiton added 10 cents to $36.00 and Fortescue Metals was one cent higher at $4.36.
Smaller miners performed even better, with Newcrest adding 32 cents to $10.84, OZ Minerals gaining 10 cents to $4.19 and Evolution Mining rising by four cents to 74 cents.
The broader All Ordinaries index was down 15.5 points, or 0.29 per cent, at 5366.5.
The September share price index futures contract was 14 points lower at 5340, with 30,721 contracts traded. National turnover was 1.78 billion securities worth $5.1 billion.