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Stocks bounce but tumbling mortgage demand hits lenders

The Australian sharemarket recovered from early weakness to finish in the black led by miners and healthcare stocks, but the major banks continued to struggle after weak domestic lending data underscored earnings headwinds and credit-crunch risks.

The S&P-ASX 200 slipped into the red in early trading as US-China trade war uncertainty and weaker earnings forecasts kept a lid on US stocks, but it rallied to a 0.6 per cent gain before easing to close up 18 points, or 0.3 per cent, at 6079.1.

VideoCliff Tan, global markets research head of East Asia at MUFG Bank, discusses China’s credit issues, the possibility of more stimulus and his outlook for the economy.

The major banks were all softer after home loan growth slump 6.1 per cent in December, down 20 per cent year-on-year, with owner-occupier lending falling 5.3 per cent as tighter lending standards continued to impact supply and demand for loans to the lowest levels since the financial crisis in 2008.

Investor lending has plunged 28 per cent over the past year and first-home buyer lending has fallen 8 per cent.

UBS economist George Tharenou said he now expected house prices to fall 14 per cent on average, double the current decline, even assuming rate cuts.

That would result in GDP growth slowing sharply to 2.3 per cent next year.

Westpac economists said the December finance approvals data shows a very weak finish to 2018 with weakness coming across the board, confirming the message from other market measures.

Fuelling the uncertainty, the ANZ Roy Morgan consumer confidence index also declined sharply last week, although the NAB business confidence index registered a bounce in line with the recovery in global markets lays month.

The Australian dollar slipped to US70.60¢ as it remained under pressure from the weak domestic yield outlook and a broadly stronger US dollar.

Despite the weaker data, government 10-year yields bounced 5 points to 2.112 per cent after US yields firmed overnight as risks of another US government shutdown mounted.

The Shanghai composite index remained firm and was trading up 0.7 per cent at the close of the ASX despite a falling yuan and news of two big Chinese companies defaulting on their bond payments.

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