Buy on the dip yield hunters helped the Australian sharemarket dodge much steeper falls in offshore markets as the split in power among US lawmakers thrust the looming tough budget talks into the market spotlight.
Overnight Wall Street tumbled 2.3 per cent, the biggest fall this year, dragging the S&P/ASX 200 index down 32.7 points, or 0.72 per cent, to 4483.8 points after Fitch Ratings warned that the US would lose its AAA credit rating if the government failed to address looming tax increases, spending cuts and the fast approaching debt ceiling.
The initial knee-jerk boost to risk assets such as commodities and equities from the re-election of President Barack Obama, and consequently no fresh scrutiny of US Federal Reserve’s unorthodox monetary polices, faded as the US economy faced a “fiscal cliff” of scheduled tax increases and spending cuts amounting that could cut GDP growth by up to 4 per according to the IMF unless Democrats and Republicans reach an agreement for extensions.
“We are more sanguine, believing a figure of 1 to 2 per cent is more realistic,” BlackRock head of Asia-Pacific fixed income Joel Kim said.
“IMF simulations suggest countries in industrial North Asia (China, Korea, Taiwan) would suffer output losses in the region of 25 per cent of the output loss suffered by the US, so for example, a minus 0.5 percentage point reduction in GDP growth in the case of a minus 2 per cent US growth shock.”
The Shanghai composite index was off one per cent at the close of the ASX, with the change in leadership offering little solace to investors fearing falling company profits and ongoing slowdown.
In Tokyo the Nikkei index fell 1.7 per cent.
Overnight sentiment was also hit by the blunt assessment by European Central Bank president Mario Draghi that eurozone growth was expected to remain weak in the near term and Germany was beginning to feel the impact of the sovereign debt crisis.
Underscoring these concerns, German industrial production fell 1.2 per cent in September, factory orders slumped 4.7 per cent and the October PMI services index dropped to 48.4 points from 49.7 points.
“To date, the ECB has been more upbeat on the economic prospects of the core, where monetary conditions are considered easy” royal Bank of Scotland currency strategist Greg Gibbs said. “If it now sees weak conditions in the core it should be more willing to consider a broader easing in monetary conditions, such as cutting the policy rate.”
Greece’s austerity budget was passed, paving the way for the disbursement of European Union bailout funds, but after dissenting politicians were expelled the ruling coalition’s majority was left in a precarious position.
The Australian dollar slipped 0.6 ¢ to $US1.04 as the US dollar rallied against most currencies.
The broader All Ordinaries index was down 32.0 points, or 0.71 per cent, at 4502.2.
On the ASX 24, the December share price index futures contract was 19 points lower at 4477, with 23,949 contracts traded.
CMC Markets analyst David Land said the Australian share market performed well considering the significant decline in the US overnight.
"On a like-for-like basis, we’ve done particularly well,” Mr Land said.
"The market is probably viewing this as a temporary fluctuation, more than a shift in the market."
Locally, BHP Billiton dropped 31 cents to $34.67, Rio Tinto dived 65 cents to $59.35 and Fortescue lost 11 cents to $3.94.
ANZ dropped $1.14, or 4.5 per cent, to $24.37 after it went ex-dividend, Westpac gained seven cents to $25.93, National Australia Bank fell 12 cents to $24.87 and Commonwealth Bank gained 38 cents $58.18.
Maintenance service group Transfield Services gained two cents to $1.59 after it won a $200 million five-year contract to provide maintenance and operations services to QGC’s Queensland coal seam gas assets.
Rare earths miner Lynas Corporation was up 8.5 cents at 80.5 cents after Malaysian activists lost a court battle to halt the company from firing up a rare earths plant in that country that has sparked health and safety concerns.
Qantas shares fell two cents to $1.28 after news that about 150 employee and 250 contractor positions will be made redundant as part of changes to the airline’s engineering operations.
National turnover was 1.67 billion securities worth $5.39 billion, with 328 stocks up, 583 down and 376 unchanged.