Australian shares closed flat despite local data indicating continued improvement in labour market and ongoing growth in the construction sector.

The benchmark S&P/ASX 200 Index dipped 0.1 points, or just 0.02 per cent, on Wednesday to 5316, as big falls from mining stocks and three of the big four banks offset gains in healthcare, energy and retail.

Local shares followed Wall Street higher at the start, but pulled back as investors grew cautious ahead of some important announcements expected in the United States and China later in the week.

Minutes from the US Federal Reserve Open Market Committee’s December meeting are due for release before the Australian market opens on Thursday. At the December meeting it was decided to start reducing the central bank’s monthly asset purchases from $US85 billion to $US75 billion. It is hoped the document will shed light on how quickly and aggressively the FOMC will proceed in scaling back its massive stimulus program.

Nomura North America economist Lewis Alexander said he “expects the FOMC, under [incoming chairman Janet] Yellen’s leadership, to increasingly link prospects for future interest rate rises to prospects for inflation.” Mr Alexander noted that for this reason the Federal Reserve may be less forthcoming in providing forward guidance during Ms Yellen’s tenure, even though this is an approach she has advocated in the past.

Banks mixed as construction growth cools

Locally, the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index showed that in December the construction sector expanded for the third month in a row. However the pace of growth slowed, with the index down 4.4 points to 50.8, after recording 55.2 in November - the second-highest rate of expansion since the survey began in 2005.

Residential and commercial construction expanded, while the engineering sub-sector contracted. Confirmation of the downturn in demand for engineering construction was negative for mining services stocks.

Among mining services stocks on Wednesday, Bradken fell 4.6 per cent at $5.58, Ausdrill lost 5.9 per cent at 96.5¢, and Decmil Group shed 3.8 per cent to $2.29. Forge Group was the worst-performing stock in the ASX 200, dumping 15.6 per cent to $1.11.

Quest Asset Partners fund manager Troy Cairns said that despite a dramatic correction in mining services over the past few months it is still tricky find good value stocks in the sector. “Mining services stocks deserve to trade on a lower than market average price-earnings ratio because it is very difficult to consistently grow earnings in an industry prone to such strong cyclical headwinds.

“Another obstacle to picking winners in the mining services sector at the moment is that companies are at risk of squeezing margins too aggressively to win jobs, which could cause problems down the track.”

The major mortgage lenders were mixed, with Commonwealth Bank of Australia the only one of the big four banks to close higher, up 0.2 per cent to $77.88. Westpac dipped 0.1 per cent to $32.04, ANZ Banking Group fell 0.5 per cent to $31.71, and National Australia Bank lost 0.3 per cent to $34.40.

Miners continue fall

Magellan Financial Group jumped 5.5 per cent at $11.48. It was the second day in a row of strong gains since the funds manager reported its funds under management grew by $587 million in December.

Telstra Corporation was flat at $5.28. Fund managers and analysts predict the telco giant will sit on its multibillion-dollar cash pile until after a new deal is finalised with government enterprise NBN Co.

Healthcare was the best-performing sector, up 0.6 per cent, with Sirtex Medical the best-performing stock in the ASX 200, soaring 16.1 per cent to $13.24. Sirtex rose after reporting December quarter sales of its radioactive liver cancer treatment were up 18.7 per cent on the previous corresponding period, rebounding from a declining growth rate over the previous three quarters.

Mining was the worst-performing sector, down 0.6 per cent ahead of trade data due for release in China, the largest export market for Australian resources, on Friday. The big miners have been slugged over the week as the spot price for iron ore, landed in China, has weakened to $US133.80 a tonne down from $US135 per tonne on Friday.

Resources giant BHP Billiton dropped 0.5 per cent to $37.04, main rival Rio Tinto lost 1 per cent to $65.35. Iron ore miner Fortescue Metals Group shed 0.9 per cent to $5.39,

OceanaGold fell 0.6 per cent to $1.64 having joined the fray of goldminers planning to cut production in 2014 after the spot price of gold crashed 28 per cent in 2013. On Wednesday the precious metal was lower at $US1227.55 per ounce.

Junior goldminer Silver Lake Resources dumped 13.7 per cent 56.5¢. Analysts said the company is under pressure to reduce the cost of developing its Murchison Goldfields project, which was greenlighted at a time when the commodity price was above $US2000 per ounce.

Retail outlook too early to call

In other economic news, Australian Bureau of Statistics data showed job vacancies trended down by 0.3 per cent in November, having fallen roughly 2 per cent over the three months to November.

ANZ Bank analyst Savita Singh said that along with other recent labour demand measure the data was encouraging. “The decline in mining labour demand has moderated in recent quarters which is a positive sign given that weakness in the mining sector has been a headwind to overall labour demand.”

Australia’s biggest oil producer Woodside Petroleum rose 0.6 per cent to $37.88 as Brent crude oil lifted to $US107.43 a barrel.  

Retail stocks were mixed. David Jones was flat at $2.98, Myer Holdings rose 0.4 per cent to $2.74, and Harvey Norman fell 0.6 per cent at $3.20. The Reject Shop dropped 0.8 per cent to $17.09.

“Initial reports indicate the retailers had a decent Christmas and the January clearance period is off to a good start, but ultimately we need to wait for trading updates and February reporting season to get real visibility on performance,” Mr Cairns said.

“Retail stocks ran following the August interest rate cut on the expectation that low interest rates and improved consumer sentiment would flow through to people spending more at the shops. Retailers that fail to show like-for-like sales growth without excessive discounting denting margins will be at risk of getting punished by investors.”

The biggest food and liquor sellers were both higher. Woolworths rose 0.3 per cent to $33.87, while Wesfarmers, owner of Coles, added 0.6 per cent to $43.92.

Foodstuffs maker Goodman Fielder was unchanged at 66.5¢ after announcing plans to sell its meat and pizza businesses. The closure of its New Zealand meat factory is slated to cut 125 jobs.

Crown Resorts rose 2.1 per cent to $17.20 as it was revealed the regulator will fast-track its application for a Sydney casino license.

Virgin Australia Holdings gained 1.3 per cent to 38.5¢, having reported improved yields on airfares in first half of financial year 2014 compared to the previous corresponding period. Rival Qantas Airways rose 0.9 per cent at $1.10. Opposition infrastructure spokesman Anthony Albanese said Labor would block any move to repeal the Qantas Sale Act, which would allow increased foreign ownership of the national carrier.