FOR the second time in three weeks, fears about China have overshadowed any "positive" news of stimulus packages from the world's central banks.
Three weeks ago, when the European Central Bank unleashed its "big bazooka" plan to save the eurozone from breaking up, US and European markets jumped 3 per cent.
But any chance of a rally on the market was rubbed out by a big fall in the price of iron ore that stoked fears of a slowdown in Chinese demand.
This week, it was the Bank of Japan's turn. Japan's central bankers said they would add an extra 10 trillion yen to the country's asset purchase program to stimulate growth. The plan was designed, in part, to help Japan's currency lose value against the greenback and euro (Japan is an export-oriented economy, so if the value of its currency goes down, its exports should become cheaper).
Immediately after the announcement, the yen did lose value against its major trading partners, helping Japan's sharemarket surge 1.6 per cent higher, with markets across Asia doing pretty much the same.
And for a time it looked like Australia's market might reach its highest level for the year breaking through the 4435-point level it made on May 2 but the rally proved short-lived.
Within 24 hours, local shares were knocked sideways by dispiriting news of Chinese economic activity. It came in the form of Thursday's flash HSBC Chinese PMI index, a measure of the level of manufacturing activity, which provided the first glimpse of September's conditions for Chinese industry.
The index rose slightly to 47.8 from 47.6 in August, pointing to a month in which a slide in manufacturing activity was slowed, but not halted.
It was enough to knock the steam out of markets. The next day, the yen had risen again against the greenback and the euro, the effects from the big announcement already having worn off.
Analysts said it seemed investors were hoping for a greater improvement (a reading below 50 shows economic growth is slowing).
Yesterday, the market made modest ground, with the benchmark S&P/ASX 200 Index closing up 11.1 points at 4408.3.
A senior trader for CMC Markets, Tim Waterer, said the bourse was guided by the disappointing data from China.
"Accentuation of the negative themes this week has served to halt market momentum," Mr Waterer said in a research note.
Financial stocks gained 0.4 per cent yesterday, with three of the big retail banks ending in positive territory. ANZ rose 10? to $24.84 after it said it had sold its wholesale mortgage distribution business, Origin Mortgage Management Services. Commonwealth Bank gained 18? to $55.15 and Westpac closed 33? firmer at $24.62. NAB slipped 13? to $25.40.
Frequently Asked Questions about this Article…
How did recent China economic data affect Australian sharemarkets?
Weak Chinese activity knocked the momentum out of Australian markets. A flash HSBC Chinese PMI reading of 47.8 (still below the 50 expansion/contraction threshold) and falls in iron ore prices stoked fears of slowing Chinese demand and pushed local shares sideways after an earlier rally.
What is the HSBC Chinese PMI and why should everyday investors watch it?
The HSBC Chinese PMI is a flash measure of manufacturing activity in China. Readings below 50 indicate contraction. In the article a 47.8 reading signalled manufacturing was still slowing, which can hurt commodity prices and resource-exposed markets — making it a useful early indicator for investors tracking China-driven sectors.
Did central bank stimulus from Japan and Europe lift markets, and why was the effect short‑lived?
Yes — earlier ECB stimulus had sparked rallies, and the Bank of Japan said it would add 10 trillion yen to its asset purchases, which initially weakened the yen and helped Japan’s sharemarket surge about 1.6%. However, the boost faded quickly as disappointing China data and a rebound in the yen offset the stimulus impact.
How did the S&P/ASX 200 perform amid these global developments?
The benchmark S&P/ASX 200 made modest ground in the article’s timeframe, closing up 11.1 points at 4408.3, after an earlier short‑lived push toward the year’s highs around the 4435 level.
What role did iron ore prices play in recent market moves?
A big fall in iron ore prices dented market rallies by raising concerns about demand from China. Because iron ore is key to the resources sector and the Australian economy, sharp moves in the commodity can have outsized effects on sharemarket sentiment.
How did major Australian banks react and were there company-specific drivers?
Financial stocks gained about 0.4% overall, with three of the big retail banks in positive territory. ANZ’s shares rose to $24.84 after it sold its wholesale mortgage distribution business, Origin Mortgage Management Services. Commonwealth Bank was quoted at $55.15 and Westpac at $24.62, while NAB slipped to $25.40.
What did market analysts say was driving the recent lack of momentum?
Analysts and traders noted that an accentuation of negative themes — notably disappointing Chinese data and weaker commodity signals — halted market momentum. A senior CMC Markets trader observed that those negative themes outweighed recent stimulus headlines.
How are currency moves connected to central bank stimulus and export performance?
The Bank of Japan’s extra asset purchases were partly aimed at weakening the yen so Japan’s exports become cheaper and more competitive. The article noted the yen initially lost value against the dollar and euro, helping Japanese shares, but the currency later rose again as the stimulus effect faded.
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