Australian share prices dipped heavily today as a 19 month low in the unemployment rate to 5.8 per cent dashed expectations of a rate cut in the near future. The All Ordinaries index fell 66 points or 1.3 per cent to 5011 and the Australian dollar jumped 0.88 per cent to US72.95c.
Oil prices have slipped, giving up gains after an early rebound on a drop in US crude oil inventories, while the US dollar fell as investors betting against the euro were forced to reverse those positions following hawkish comments from a European policy-maker.
Wall Street ended lower on Wednesday, as the S&P 500 moved in tandem with oil prices through most of the day, and closed at a low not seen since November 13.
The US dollar was sharply lower in afternoon trading on a resumption of the severe selling which had characterised last week’s plunge against the euro after disappointment over European Central Bank policy moves.
Traders attributed the declines in the US dollar to comments from European Central Bank member Ewald Nowotny, who said markets had overestimated what action the ECB would take at its December 3 policy meeting, adding “there were exaggerated expectations in relation to the actions taken by the ECB”.
The euro rose to $US1.1029 after hitting a high of $US1.1041, a level not seen since early November; it was seen as something of a surprise move ahead of the December 15-16 Federal Reserve meeting on US monetary policy.
“In a market that’s looking for information he was really the sole voice,” said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.
Coming into this week, speculators had amassed their largest short position in the euro since May, and the change in the market’s tenor since the ECB failed to deliver the jolt that investors expected has kept the US dollar soft and the euro stronger.
“People thought that the ECB would take a step back and try to talk down the rhetoric, but instead you had Nowotny come out today and say, ‘You know what? The ECB is right’,” Borthwick said.
Analysts still expect the US dollar to rise in the coming weeks. The US dollar index, which tracks the greenback versus a basket of six currencies, was last down 1.2 per cent.
US crude was initially supported by data showing a surprise 1.9 million-barrel fall in US inventories to 488 million barrels last week.
But traders seemed more concerned about a build in distillates, including diesel, causing earlier gains to reverse. US crude futures settled down 35 US cents at $US37.16 a barrel.
Major equity averages traded in tandem with oil, with the S&P peaking early in the morning as oil rallied, and then slipping through most of the morning.
The Dow Jones industrial average ended down 0.4 per cent to 17,492.30, the S&P 500 fell 0.77 per cent to 2,047.62 and the Nasdaq Composite gave up 1.5 per cent to 5,022.87.
“I think the market is starting to be a little bit more concerned about global economic weakness,” said Paul Nolte, senior vice president and portfolio manager at Kingsview Asset Management in Chicago.
The prospect of a merger between chemical giants Dow Chemical and DuPont boosted those shares.
Dow Chemical and DuPont both gained nearly 12 per cent.
MSCI’s all-country world equity index, which tracks shares in 45 nations, was last down 0.34 per cent. Europe’s broad FTSEurofirst 300 index ended down 0.5 per cent.
US Treasury debt yields fell. Benchmark 10-year Treasury notes were last up 2/32 in price to yield 2.21 per cent, from a yield of 2.24 per cent late on Tuesday.
Gold initially rose 0.2 per cent, supported by US dollar softness, but ended nearly flat on the day as investors remained cautious ahead of the anticipated Fed rate rise next week.