Stocks resume downward path on eurozone fears
The Australian sharemarket resumed its decline after eurozone growth concerns were added to the mix of negative factors dampening sentiment.
Following the 0.6 per cent drop on the US S&P 500 index last night, the S&P/ASX 200 index dropped 40 points, or 0.74 per cent, to 5375.8.
Investors dismissed the bounce in Chinese manufacturing yesterday after Europe’s PMI index slipped closer to the contraction zone.
Compounding market uncertainty ahead of the end of US Federal Reserve quantitative easing next month, the European Court of Justice will review Germany’s challenge to the European Central Bank’s “outright monetary transactions” policy that put a bottom under global markets in September 2012.
“Were the ECJ to deem OMT illegal, it would surely squash expectations that the ECB might yet go down the path of sovereign bond buying in order to facilitate its planned balance sheet expansion by the desired 1 trillion euro ($1.45 trillion),” National Australia Bank global head of currency strategy Ray Attrill said.
The Australian dollar reversed gains on the Chinese data, slipping US0.5¢ to US88.70¢, while government two-year yields rose 2.2 points to 3.576 per cent.
In its latest Financial Stability review the Reserve Bank expressed concern housing speculators posed risks to macroeconomic growth by “amplifying the property cycle”.
The Reserve hinted macro-prudential policies could be imposed on banks to limit risky lending in order to prevent prices rising sharply and then dropping because of the negative impact on national wealth.
The Shanghai composite index rallied from the red to trade up 1.4 per cent at the close of the ASX as stimulus hopes lingered.
In Tokyo the Nikkei index lost 0.3 per cent.
Last night US data was mostly weaker as July house prices edged up just 0.1 per cent, the weakest reading since November, while the US PMI manufacturing index was unchanged at 57.9 points.
Spot iron ore lost 0.5 per cent to $US79.40 a tonne yesterday while Dalian iron ore futures bounced one per cent today and steel rebar futures firmed 0.2 per cent.
Gold was flat at $US122 an ounce and copper was little changed at $US6740 a tonne.
The major banks suffered a further blow because of the RBA’s comments, CMC Markets chief market analyst Ric Spooner said.
"This signals the potential for banks’ lending activities to be tightened and this has been seen as a negative by the market,” Mr Spooner said.
"While the banks have closed lower, they haven’t moved below yesterday’s low so there’s no fresh statement of further weakness in bank stocks."
He said the Chinese iron ore futures market was up slightly during the day, helping boost some of the mining stocks.
Commonwealth Bank shed 88 cents to $76.42, ANZ lost 27 cents to $31.38, Westpac dropped 30 cents to $32.47, and National Australia Bank was down 47 cents at $33.04.
The mining sector was mixed, with Rio Tinto up 55 cents at $60.75 and Fortescue Metals flat at $3.66, while BHP Billiton declined 26 cents to $34.69.
In other news, troubled rare earths miner Lynas Corporation has placed its shares in a trading halt as it prepares to reveal details of a new funding deal.
KEY FACTS
At 2.15pm, the benchmark S&P/ASX200 index was down 39.9 points, or 0.74 per cent, at 5,375.8 points.
The broader All Ordinaries index was down 40 points, or 0.74 per cent, at 5,375.9 points, according to preliminary figures.
The December share price index futures contract was down 33 points at 5,373 points, with 27,151 contracts traded.
National turnover was 2.56 billion securities worth $4.8 billion.
