The Australian sharemarket closed in the red on low volume as traders headed for the sidelines before the US Federal Reserve monetary policy announcement tonight.
Iron ore miners led the losses after the rebound in spot prices stalled on yesterday, but the major banks were also weaker, leaving the S&P/ASX 200 index 21.8 points, or 0.5 per cent, down at 4339.4 points.
The Fed’s decision tonight remains the last “key risk” event after the German constitutional court gave the go ahead for the Eruoepan Stability mechanism to be ratified.
However, after strong rallies which have prices in positive outcomes , the US S&P 500 index climbed 0.2 per cent last night and European stocks were up 03 per cent on average, after the court capped Germany’s contribution to the ESM at 190 billion euros and said both houses of the German parialent must be informed of ESM decisions.
Markets are reflecting the belief that the ESM’s 700 billion euro ($858 billion) fund will be big enough to contain the crisis if the European Central Bank is successful in capping the borrowing costs of Spain and Italy, but doubts remain that the problem has been solved.
The Shanghai composite index was off 0.1 per cent at the close of the ASX after the official Xinhua News Agency said massive stimulus measures would be “detrimental” to sustainable growth and that a” aggressive plan, such as the $630 billion one in 2008, was unlikely. Japan’s Nikkei index was up 0.4 per cent.
Iron ore fell $US2.10 to $US 98.10 yesterday, while Shanghai rebar futures were up 0.1 per cent today.
ANZ head of commodity research Mark Pervan wrote in a report that a conference call with clients revealed the the “general mood” in China was “very cautious”, with activity in the key export province of Guangdong seeing activity down as much as 40 per cent.
He said most people believed it would be six to nine months before things improved, with recent stimulus plans only being felt “on the ground” in the March-quarter of 2013.
National Australia Bank global head of currency strategy Ray Attrill said given the “fairly strong consensus” view that the Fed would announce both an extension of the forward guidance regarding the commitment to keep rates low (until well into 2015) and announce a new bound buying program, “reaction to such an outcome should be subdued”.
“If however, and as we expect, the Fed announces a rolling, open-ended, bond buying programme likely involving both mortgage backed securities and Treasuries and in the order of (about) $75 billion a month, this should elicit at least a mild risk-positive response,” he said.
The broader All Ordinaries index was down 23.3 points, or 0.53 per cent, at 4,359.8.On the ASX 24, the September share price index futures contract was 19 points weaker at 4,345 with 24,410 contracts traded.
CMC Markets sales trader Ben Taylor said the investors were adopting a cautious approach prior to the US Fed announcement.
"It seems no one wants to take a big position when the markets are at the top of their recent range,” Mr Taylor said in a research note.
Metals and minerals stocks fell 0.81 per cent, gold stocks slipped 0.76 per cent and the materials sector lost 0.66 per cent according to IRESS data.
Fortescue Metals Group slide almost 14 per cent, mostly in late trading on heay volume, down 48 cents to $2.99 amid fresh concerns about its ability to repay debt.
Global miner BHP Billiton was down seven cents at $32.78 and Rio Tinto was down four cents at $55.05, as iron ore spot prices fell back below $US100 ($A95.98) a tonne on fresh doubts about China’s steel outlook.
Elsewhere, department store chain Myer cited an uncertain outlook for not providing earnings guidance, after reporting a 12.7 slide in full year net profit for its fiscal 2011/12.
Myer ended down two cents at $1.825.
In the media sector, the competition watchdog delayed a decision on the potential acquisition of pay TV investor Consolidated Media Holdings by Kerry Stokes’ Seven Group amid concerns about TV sports rights.
Seven fell five cents to $7.65, while ConsMedia slipped one cent to $3.41.
Telstra was one of only four stocks that finished in green figures on the S&P/ASX20, rising 0.52 per cent, or two cents, to $3.85.
The spot price of gold in Sydney was $US1,730.30 per fine ounce, down $US6.00 from Wednesday’s local close of $US1,736.30 per ounce.
Preliminary national turnover was 1.4 billion securities worth $3.1 billion, with 395 stocks up, 502 down and 377 unchanged.