The Australian sharemarket jumped to a fresh six-year high after investors were emboldened by benign US inflation data but gains were pared as iron ore futures fell and firm domestic inflation dashed rate cut hopes.
Following the 0.5 per cent gain in the US S&P 500 to a record high the S&P/ASX 00 index climbed one per cent mid-session, but it dropped back to close 33.4 points, or 0.6 per cent, up at 5576.7 after June-quarter consumer inflation met forecasts for a 3 per cent annual rate.
The Australian dollar spiked US0.5¢ to US94.35¢ on the news, while government 10-year bonds jumped 4.1 points to 3.413 per cent.
“A stronger inflation tone than the market was expecting coupled with the return of consumer confidence to long-run average levels, also supports our view for higher bond yields,” ANZ strategist Zoe McHugh said.
However, giving a strong indication it sees little upside to rates, Commonwealth Bank announced that it had cuts its 5-year fixed mortgage rate to a record low of 4.99 per cent.
Westpac economist Justin Smirk said inflationary pressure was being maintained by housing and health costs, both of which are non-traded, while consumer goods, both discretionary and non-discretionary, remain a source of disinflationary pressure and dominate the traded sector.
Last night demand for yield was boosted by US CPI of 2.1 per cent that met market forecasts and eased jitters benchmark US rates would start to rise early next year.
US 10-year yields rose 4 points ahead of the data but reversed to fall one point at 2.45 per cent as the data showed a 0.1 per cent drop in real US wages.
The Shanghai composite index was up 0.2 per cent at the close of the ASX.
In Tokyo the Nikkei index was off 0.2 per cent.
Dalian iron ore futures were down 0.5 per cent following the 0.6 per cent drop in the spot price to $US95.40 a tone yesterday.
Gold was steady at $US1306 an ounce while copper slipped 0.1 per cent to $US7030 a tone.
CMC Markets chief market strategist Michael McCarthy said strong overnight leads from the US and market heavyweight BHP Billiton’s better than expected annual production number were key drivers.
“The slightly weaker than expected US CPI number was a Goldilocks, not too warm, not too hot, number for stocks,” he told AAP.
“Inflation was not high enough to cause concerns about higher interest rates but well outside the range of deflation.”
Australia’s own quarterly inflation figures today were higher-than-expected at 2.8 per cent but any rate rises are not considered likely in the near term.
BHP Billiton was 47 cents, or 1.2 per cent, higher at $38.98 according to preliminary data, after it reported record production of iron ore and coal.
Fellow resources company Rio Tinto gained 40 cents to $64.53 while Fortescue Metals gave up some strong early gains to close up one cent at $4.62.
The big banks were all higher on a day that the biggest home lender Commonwealth sparked a price war after dropping its five year fixed home loan rate to 4.99 per cent.
CBA added 30 cents to $81.56, ANZ rose 13 cents to $33.50, NAB gained 21 cents to $34.41, and Westpac put on 15 cents to $34.09.
The broader All Ordinaries index was up 33.0 points, or 0.60 per cent, at 5567.0.
The September share price index futures contract was 54 points higher at 5549 points, with 17,911 contracts traded.
National turnover was 1.93 billion securities worth $4 billion.