Market extends yesterday's gains
Evidence of consumer distress was swept aside and the Australian sharemarket extended its yield-driven recovery after Reserve Bank governor Glenn Stevens suggested interest rates could be lowered and that investors were underestimating the risk of a "significant" fall in Australian dollar.
The overnight lead was slightly firmer but the S&P/ASX 200 index climbed 35.8 points, or 0.66 per cent, to 5491.2 points as miners led a broad rally after traditionally volatile US ADP jobs data beat forecasts, raising optimism over the US recovery.
Domestic focused stocks showed little concern over the heavy blow to consumer confidence from the Federal Budget reflected in the 0.5 per cent drop in May retail sales. April's sales data was also revised down to minus 0.1 per cent, which along with the $1.9 billion trade deficit announced yesterday would make a sizeable dent in June-quarter GDP.
Westpac economist Matthew Hassan said the weakness was not simply related to warm weather.
"With the housing sector still on the up, that suggests the fall may be an indication that weaker consumer sentiment and job loss fears are again seeing a pull-back in discretionary spending on 'big ticket' items," he said.
The dollar fell US0.5¢ to USUS93.80¢ after Mr Steven's said the currency was overvalued by most measures and emphasised that higher interest rates were not imminent.
Government 10-year yields slipped 1.9 points to 3.543 per cent, just above one-year lows, shrugging off the 5 points bounce in benchmark US 10-years to 2.63 per cent last night.
With a finger pointing firmly at the Sydney housing market, where investors housing approvals were 130 per cent above 2008 levels, he warned people should not assume that prices always rise. "They don't; sometimes they fall," he said.
The Shanghai composite index was up 0.3 per cent at the close of the ASX.
In Tokyo the Nikkei index was off 0.2 per cent.
Last night the S&P 500 index firmed just 0.1 per cent after the ADP report pointed to a solid US non-farm payroll report tonight.
US Federal Reserve chairman Janet Yellen went some way to reaffirming the concept of the "Fed put" - the belief the Fed will always underpin financial markets - when she said in a speech monetary policy would not be used to address financial stability concerns and asset bubble risks.
She said macro-prudential measures such as higher and "counter-cyclical" bank capital requirements were sufficient to retain banking system "resilience".
Dalian iron ore futures were flat following a0.5 per cent rise in the spot price to $US94.70 a tonne yesterday, while copper jumped 1.2 per cent to $US7100 a tonne and gold slipped $US3 to $US1323 an ounce.
More to come…
