Stronger local bourse defies fears of Chinese slowdown

Economists are tipping a rate cut, writes Gareth Hutchens.

The local sharemarket jumped nearly 3 per cent this week despite comments from Chinese government officials that China's growth rate could slow to 6.5 per cent.

Economists also said Australia's dollar remained in a fragile condition, with a risk that it could go under the US90¢ level soon.

For the week, the benchmark S&P/ASX200 index jumped 132.2 points, or 2.7 per cent, at 4973.9, while the broader All Ordinaries index rose 131.1 points, or 2.7 per cent, at 4957.5 points.

Economists said the Reserve Bank would likely cut rates at its August meeting, given the surprising rise in jobless figures.

Bureau of Statistics data on Thursday showed a rise in the Australian jobless rate by 0.1 percentage points to 5.7 per cent.

The economy actually added 10,400 new jobs in June, but the positions came from a 14,800 rise in part-time employment, with full-time employment dropping by 4400.

The full-time unemployment rate has risen to 6.1 per cent, the highest rate since the global financial crisis.

However, financial markets have not fully priced in a rate cut - there is a two-thirds chance of a 25 basis point cut next month - because they are waiting for second-quarter inflation figures, which will be released on July 24.

The Australian dollar has been an interesting one to watch. It remains volatile, likely to rise or fall by 2¢ in a session. But interestingly, currency strategists point out that the correlation between daily changes in dollar and both commodity prices and yield spreads have crashed to multi-year lows.

They have also pointed out something else: "[The dollar's] correlation with the Australia-US 2 year swap yield spread is near zero, last seen in the depths of the global crisis in Oct 2008," Westpac's senior strategist Sean Callow said.

"This is despite the Reserve Bank rate cut in May that obviously hurt the Australian dollar, and the related soft domestic data and China growth concerns that have weighed on Australian yields."

For the week, Alumina rose 4.5¢, or 4.3 per cent, at $1.09, despite its giant aluminium producing partner Alcoa posting a large quarterly loss.

Billabong International fell 3¢, or 11.5 per cent, to 23¢, after chief executive Laura Inman said trading conditions in the Americas had "turned a corner", while things remained tough for its Australian and European operations.

CSR fell 7¢, or 2.9 per cent, to $2.28, even though the building products maker said it expected construction of new houses to improve in the months ahead, with a better performance from its glass business.

Newcrest Mining rose $1.36, or 12.7 per cent, at $12.09. The embattled gold miner told workers at its Telfer mine in Western Australia that some of them would lose their jobs in the next six to 12 months.

Telstra rose 7¢, or 1.5 per cent, at $4.83, after the company said it planned to send 170 full-time jobs to India.

Whitehaven Coal slipped 12¢, or 5.2 per cent, at $2.18. Work at Whitehaven's Maules Creek mine in NSW was disrupted by protesters who said the project would destroy local heritage sites.

Yancoal Australia rose 2¢, or 2.9 per cent, at 72 cents. Chinese giant Yanzhou Coal Mining's plans to take full control of its Australian offshoot Yancoal could face a potential roadblock from the Foreign Investment Review Board.