Good news from China helps drag bourse out of doldrums
Fears about US Federal Reserve tapering continued this week, with bond yields increasing and global sharemarkets remaining volatile.
There was renewed speculation the Bank of Japan might have to unleash another round of stimulus in coming months.
Ratings agency Standard & Poor's warned the normalisation of global monetary policy could lead to a sharp outflow of capital from the Asia-Pacific, triggering higher financing costs and exchange rate volatility.
But there was some good economic news from overseas, with positive manufacturing data from China and Europe helping to improve sentiment at home.
For the week, the benchmark S&P/ASX200 rose 9.5 points, or 0.2 per cent, to 5123.4 points, while the All Ordinaries rose 15.1 points, or 0.3 per cent, to 5115.2 points.
Analysts pointed out that only 49 per cent of the 126 companies that have reported their profits so far have surprised on the earnings line. So the bourse had been drifting lower for the week, with little help from lacklustre profits, but it managed to close slightly in the black after Asian markets bounced back on Friday, lifting Australia with it.
Local shares outperformed Wall Street on Friday as the first positive Chinese manufacturing data in four months boosted banks and miners.
China's upbeat purchasing managers' index reading for August helped local shares gain nearly 1 per cent, against a 0.44 per cent gain for the Dow Jones index on Thursday.
"You go back three or four months and there were some concerns that China wasn't going to grow," RBS Morgans senior private client adviser Bill Chatterton said.
"Irrespective of commentary from some of the political areas saying the mining boom is dead, it's not," he said.
Economists still expect another interest rate cut, saying it is clear from the minutes of the Reserve Bank's last meeting that the bank still retains a cutting bias. But few expect it to move next month.
"The Reserve Bank board next meets on September 3, this is four days before the election," Westpac chief economist Bill Evans said.
"The board's minutes for the August meeting stated clearly that rates are likely to be on hold in September but that the board has not closed off the possibility of reducing rates further. That is consistent with our own view that more rate cuts can be expected over the course of the next six months."
Mr Evans said he expects rates will be cut in November by 25 basis points, with another cut likely "early in 2014".
For the week, BHP Billiton fell $1.23¢, or 3.3 per cent, to $35.64, after the miner reported a heavy fall in annual profit.
Rio Tinto fell 15¢, to $59.93, after the minerals explorer Metals X acquired Rio's interests in the Mt Davies joint venture in South Australia for $500,000.
BlueScope Steel dropped 37¢, or 6.8 per cent, to $5.10, after the steelmaker reported a solid turnaround but ruled out dividends, warned of a flat outlook and increased its exposure to Australia's steel market with new acquisitions.
Boral gained 16¢, or 3.6 per cent, to $4.24, after the building products maker said it was preparing for another difficult year after reporting a $212 million annual loss.
Suncorp rose 50¢, or 4 per cent, to $12.84, despite posting a 32 per cent drop in annual profit due to losses from its non-core portfolio.
Frequently Asked Questions about this Article…
The ASX was roughly flat to slightly positive: the S&P/ASX 200 rose 9.5 points (0.2%) to 5,123.4 and the All Ordinaries gained 15.1 points (0.3%) to 5,115.2. Markets were driven by a mix of full‑year company results, higher global bond yields and Fed taper concerns, speculation about Bank of Japan stimulus, a warning from S&P about Asia‑Pacific capital outflows, and a late boost from positive Chinese and European manufacturing data.
China’s stronger purchasing managers’ index for August — the first positive reading in four months — helped lift Asian markets and gave Australian banks and miners a notable boost, sending local shares up nearly 1% on the day that China’s data surprised positively.
Earnings season has been mixed: of the 126 companies that had reported at the time, only 49% surprised on earnings, and many results were lacklustre — a factor that contributed to the market drifting lower during the week before the late rally from Asia.
Economists cited in the article say the RBA still has a cutting bias and expect further rate cuts over the coming months; Westpac’s chief economist Bill Evans suggested rates were likely to be on hold at the September 3 meeting but expected a 25 basis‑point cut in November and another cut early in 2014.
BHP Billiton fell $1.23 (3.3%) to $35.64 after reporting a heavy fall in annual profit, while Rio Tinto eased 15c to $59.93 following the sale of its interests in the Mt Davies joint venture to Metals X for $500,000.
BlueScope Steel dropped 37c (6.8%) to $5.10 after reporting a turnaround but ruling out dividends, warning of a flat outlook and increasing domestic exposure through acquisitions. Boral rose 16c (3.6%) to $4.24 after revealing a $212 million annual loss and saying it was preparing for another difficult year.
Suncorp shares rose 50c (4%) to $12.84 despite a 32% drop in annual profit — the decline was driven by losses from its non‑core portfolio, yet the share price moved higher, reflecting investor reaction to the company’s overall update rather than just the headline profit number.
Investors should monitor rising global bond yields and Fed taper speculation that can increase market volatility, the possibility of further BOJ stimulus, and the S&P warning that normalising global monetary policy could trigger capital outflows from the Asia‑Pacific leading to higher financing costs and exchange‑rate swings.
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