Traders Don't Let Chance Of A Slowdown Get To Them

Sydney Morning Herald

Thursday December 17, 1998

By TONI O'LOUGHLIN and LACHLAN JOHNSTON

Stronger commodity prices helped the dollar and sharemarket to modest rises yesterday, despite more signs the domestic economy would slow down in 1999.

The dollar climbed more than half a cent overnight to US62.66c, its highest level in two and a half weeks, before slipping back during local trading to close at US62.44c, US0.43c higher than the previous day.

In the sharemarket, the All Ordinaries rose 9.4 to 2697.3, with resources leading.

This was despite the announcement of the Westpac-Melbourne Institute leading index of economic activity falling during October, indicating that growth will slow to around 2 per cent by mid-1999, well below the historical average of 3.5 per cent.

Bureau of Statistics dwelling commencement figures showed the number of new houses being built during the September quarter rose 0.7 per cent.

Commonwealth Bank senior economist Mr Michael Blythe said the housing numbers were stronger than most expectations, but correlated with other indicators showing a slowdown in housing.

"We've had the peak for the cycle and that peak is obviously quite a bit lower than other peaks we've seen."

Another Bureau of Statistics report showed a 1.5 per cent drop in the value of merchandise imports during November.

Traders said the Commodity Research Bureau index's second consecutive rise, after eight days of falls, encouraged investors to buy the dollar and resource stocks.

However, currency traders said the rally had been exaggerated because the volume of orders traded was low as financial markets were winding down for the Christmas period. Despite a resurgence on Wall Street the previous night, the local sharemarket also appeared to be winding down for Christmas.

Brokers reported a reduction in buying orders from European fund managers.

Regional markets failed to capture the buoyancy of Wall Street. Japan's Nikkei index rose 85 to 14,096 and Hong Kong's Hang Seng fell 13 to 9939.

In the local market, the slow recovery in resource stock continued as commodity prices improved slightly overnight.

Woodside made the largest gain, rising 39c to $7.19, while WMC rose 18c to $4.73 and Pasminco 5c to $1.19.

Bank shares fell as hopes of corporate activity faded further after Reserve Bank governor Mr Ian Macfarlane said he would rather Australia not "experiment" with big bank mergers. Westpac, down 26c to $10.17, and NAB, 16c to $24.14, suffered the heaviest falls ahead of their annual meetings today.

"The comments of the Reserve Bank governor knocked the stuffing out them a little, particularly after the veto of mergers in Canada," J. B. Were & Son senior institutional dealer Mr Patrick Crabbe said.

Trading was similarly quiet in the bond market.

Warburg Dillon Read executive director Mr Rob Foal said: "The volume that's gone through is so small and quiet it's hard to identify one thing behind it."