Bargain hunters swooped in on early weakness on the Australian sharemarket, sweeping aside cracks in the eurozone recovery façade.
Following a choppy night in offshore markets the S&P/ASX 200 index opened 0.5 per cent down but ramped higher mid-morning as tumbling domestic bond yields sparked a scramble for high yielding stocks. The index surged to a 0.7 per cent gain but dropped back to close 22.3 points, or 0.41 per cent, up at 5486.8.
Overnight a further blowout in Portuguese bond yields after Banco Espirito Santo defaulted on its debt sent European stocks 2 per cent lower in early trade, but reports the problem was “contained” lifted stocks off the lows.
“Markets are left torn between viewing this news as BES-specific or something more systematic,” National Australia Bank global head of currency strategy Ray Attrill said.
Acquasia credit analyst Mark Bayley noted that fallout drove the price of the Markit iTraxx Financial Index credit default swap index used to hedge risk on 25 European banks and insurers jumped 5 points higher to 74, the fifth straight daily increase.
The Australian dollar rallied from its overnight low of $US93.70¢ to US93.90¢ but government 10-year yields fell 4.7 points to a fresh two-year low of 3.42 per cent on safe-haven demand and mounting expectations for a domestic rate cut.
“Weak wages inflation and slow employment growth do raise the risk of slower household income growth, however, and at a time when several tax increases, a broader economy-wide negative income shock, and low levels of consumer confidence are already presenting a material headwind,” Goldman Sachs said.
“Given the balance of risks to the outlook, and very benign inflation outlook, we see a solid case for further policy mitigation from the RBA. We expect a -25 basis point rate cut in September.”
The Shanghai composite index was up 0.4 per cent at the close of the ASX on speculation local governments were loosening property market curbs to prevent further slowdown.
In Tokyo the Nikkei index was off 0.3 per cent.
Dalian iron ore futures traded in and out of the red following the 0.3 per cent rise in the spot price to $US96.90 a tonne yesterday.
Gold hit a fresh four-month high of $US1345 an ounce last night but slipped back to $US1337/oz, while copper rose 0.5 per cent to $US7160 a tonne.
Australian stocks finished the day higher but the market was down for the week after three days of losses from Monday to Wednesday.
IG market strategist Stan Shamu said the May home loans data released today, showing a steady rate of approvals, helped boost investor confidence.
"It confirmed that perhaps the domestic economy is improving,” he told AAP.
The major banks ended up outperforming the overall market, with ANZ up 19 cents to $33.35, Westpac 20 cents up at $33.95, NAB lifting 28 cents to $33.67 and Commonwealth Bank climbing 38 cents to $81.23.
Shares in David Jones, Australia’s oldest department store, were flat ahead of Monday’s shareholder vote on whether to let the company fall into the foreign hands of suitor South Africa’s Woolworths Holdings.
The stock is at $3.93, up more than 20 per cent since the bid lobbed in April.
The broader All Ordinaries index was up 20.3 points, or 0.37 per cent, at 5474.6.
On the ASX 24, the September share price index futures contract was 34 points higher at 5454, with 29,230 contracts traded.
National turnover was 395 million securities worth $633 million.