Markets ignore missile threat
Favourites drag down market
US markets shrugged off the North Korean missile threat, but the Australian sharemarket reversed an early dead cat bounce as the rallying Aussie dollar weighed on exporters.
The S&P-ASX 200 index bounced 0.3 per cent at the open but quickly ran into selling and it fell to a 0.2 per cent loss before closing up just 0.7 points, or 0.01 per cent, at 5669.7.
The dollar was up US0.3¢ before construction work data showed an unexpected 9.3 per cent surge in June-quarter capital expenditure, prompting a spike to US80¢ as traders read the news as being growth positive and increasing the likelihood of a rate rise next year.
But it later dropped back to US79.60¢ as economists suggested the construction surge was an anomaly.
Westpac economist Andrew Hanlan said the jump was likely a result of the importation of Shell’s Prelude, a floating LNG platform built in South Korea, with the capital spending offset by the cost of import.
He added that in the past the impact of the platform on the national accounts would have been smoothed by having it amortised over the duration of its construction.
ANZ economist Daniel Gradwell said aside from the strength in engineering construction from the LNG platform import that would not flow through to June-quarter GDP, housing construction declined further, and private non-residential building was also disappointing.
“The public sector fared much better as expected, but the upshot of these results is that privately-funded construction will not provide much, if any, support to June-quarter GDP,” he said.
Domestic building permits fell 1.7 per cent last month, less than the forecast 5 per cent drop, but remained down 13.9 per cent in the past year.
Government 10-year yields jumped 4.5 points to 2.67 per cent after global jitters eased, as Western leaders kept cool heads in an attempt not to escalate simmering tensions over North Korea’s provocative actions.
The Shanghai composite index lost upside momentum and was marginally weaker as the central bank continued to keep a tight rein on interbank funding to limit speculation in housing and commodities.
Stoking simmering concerns about China’s escalating debt risks, UBS analyst Jason Bedford said shadow-bank loans from banks in China’s “rustbelt” regions grew almost 15 per cent to 14.1 trillion yuan ($2.9 trillion) from a year earlier, equal to about 19 per cent of economic output.
“This is a sleeper issue,” he wrote. “The remarkable level of concentration in regional banks in rust-belt region banks, combined with evidence that these assets are increasingly being used to roll over loans to existing borrowers as well as being swapped between banks without a clear transfer of risk, are alarming.” Dividend hunters’ favourites Telstra and Commonwealth Bank were the biggest drags on the sharemarket yesterday.
Telstra dived 24¢ to $3.60 after going ex-dividend 15.5¢ and on news that NBNco would not agree to Telstra’s plan to monetise its NBN income.
Commonwealth Bank fell 36¢ to $75.37 as investors continued to bail out of the embattled lender facing a drop to a technical target of $70 after its break below technical support last week.
ANZ slipped 6¢ to $29.06, National Australia Bank dipped 2¢ to $30.06 and Westpac rose 2¢ to $31.16.
UBS analyst Jonathan Mott said the near-term outlook for bank earnings remained sound, but “risks are very elevated”.
He said the medium-term outlook remained “challenged” given the highly leveraged consumer, limited household income growth, Sydney and Melbourne housing bubbles and ongoing political and regulatory pressure, as highlighted at CBA.
“This, in our view, is likely to prevent any sustained recovery in share prices,” he said
BHP firmed 8¢ to $26.95, Rio Tinto added 10¢ to $66.70 and
Fortescue Metals fell 11¢ to
$5.87. Spot iron ore dropped one per cent to $US76.36 a tonne on Tuesday and Singapore iron ore futures eased yesterday.
Ramsay Health Care slumped $3.78 to $68.10 after delivering disappointing earnings. Woolworths added 6¢ to $25.62 and Brickworks lost 8¢ to $12.99.