ASX closes up on bargain hunting
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.
More to come…
