(IBTimes) - MARKET CLOSE
Today certainly was not an enjoyable day for those involved in
markets. The All Ordinaries Index (XAO) slumped by 2.6 pct or
109.7 pts to 4098.8. Almost all sectors ended in the red today,
with the mining and financial sectors the worst performers. Today
was the biggest daily pullback for the ASX in 2012 and the worst
weekly performance (down 5.6 pct this week) since September 2011.
Australian shares wiped out all of the market's gains for the
year in a matter of days.
One of the big three ratings agencies, Moody's cut the credit
ratings of 16 Spanish banks including Banco Santander which is
one of Spain's biggest banks. This came just days after it
downgraded 26 Italian banks. The downgrades are due to both
economies slipping back into recession, the ratings agency not
expecting conditions to improve this year and a rise in bad
The market is also concerned with the political uncertainty in
Greece, with investors having to wait at least a month to find
out the result of the Greek Presidential elections. The Greeks
are expected to return to the polls on 17 June. Keep in mind that
Greece only makes up around 2.5 pct of the Eurozone economy.
Despite this, the potential exit of Greece has created concerns
of what it would mean for the future of the Eurozone. In the
event of a Greek exit from the Euro area, it would need to return
to the Drachma and significantly devalue its currency (by as much
as 70 pct). This means that its currency would be worth less but
its debts stay the same. Investors are concerned with the
potential impact of this on other Eurozone nations such as
Portugal Ireland, Italy and Spain.
The world's largest miner and the biggest company on the local
sharemarket, BHP Billiton (
) fell by 4 pct or $1.31 to $31.46 and hit its lowest level since
March 2011. The smaller Rio Tinto (
) performed even worse, down 5.09 pct or $2.96 to $55.20 while
Fortescue Metals Group (FMG) also slumped by 5.09 pct or 25 cents
to $4.66. FMG has fallen by a staggering 14 pct this week.
The big four banks also did it tough, with National Australia
Bank (NAB) down 4.23 pct or $1.03 to $23.32. The other three
majors dropped by between 3 pct and 3.8 pct.
It wasn't all bad news however, with the gold producers
gaining strongly. Newcrest Mining (NCM), Australia's largest gold
miner rose by 3.82 pct or 92 cents to $25.03 while the smaller
players also rallied.
No major economic data was released in Australia today, but it
certainly has been a busy week on the economic front. In the
middle of the week, the latest consumer confidence and wage price
index was out.
Consumer sentiment improved for the first time in three months
by 0.8 pct, but is still around 8 pct lower than this time last
year. The report is released on a monthly basis by Westpac and
compiled by conducting a survey of around 1,200 consumers asking
a variety of questions on topics such as employment and expected
future economic conditions.
Commsec Economist, Savanth Sebastian said that "The Reserve
Bank would have hoped that the deep rate cut would have provide a
positive shock to confidence and be a catalyst to drive activity
but in the short-term it is yet to have the desired effect. And
while the latest result doesn't bode well for retailers (who have
been facing tough trading conditions for some time, the budget
handouts begin in earnest this week, with $110 per child to be
distributed to households - a result that should support near
The Wages Price Index rose by 0.9 pct in the previous quarter
as expected. This measures the change in the price both
businesses and government pay for labour (not including bonuses).
The index is considered to be a leading indicator of consumer
inflation (if businesses are paying more for staff, the cost is
likely to be passed on to the consumer.)
Mr Sebastian said that "It is the perfect outcome. Wages are
still rising at a faster pace than underlying inflation. So the
modest real wage gains are serving to support spending. More
importantly, inflationary pressures are under control and given
that the job market is going sideways, it is likely that growth
in wages over the coming year will remain balanced. The Reserve
Bank has identified labour costs and productivity to be the two
hot button issues to watch. And while wages have been contained
there is no doubt that productivity has been weak. However the
combination of continued economic growth and a flattening of the
job market suggest that productivity may have picked up in recent
months. The tame growth of wages keeps the door open for another
rate cut. Most likely this would occur at the August Board
meeting, but if the European situation was to deteriorate
markedly in the next few weeks, an earlier rate cut couldn't be
On Tuesday, the RBA minutes were out and provided little in
the way of additional hints into expectations for rates. With
inflation under control and expected to remain within the 2 pct
to 3 pct target range however, interest rates are likely to be
cut by 0.25 pct in August this year. This would take rates to 3.5
pct, its lowest level since November 2009.
Commsec Economist, Savanth Sebastian said that "Interestingly
the Reserve Bank spent time discussing the weakness in housing
activity. The Reserve Bank is well aware of the importance of
home construction in driving domestic growth. And the lack of new
building and ongoing decline in house prices is a clear dampener
on overall activity. In addition while the Reserve Bank believed
that the fundamentals for housing remains strong, the Minutes
highlighted that there was "little prospect of an imminent
recovery in housing construction". In effect providing the
Reserve Bank with further validation to provide a deeper rate
Next week will be extremely quiet on the economic front in
Australia with the skilled vacancies report out on Wednesday.
No major economic news was issued in the Asia-Pacific region
today. It will also be a quiet session in both the U.S and
Europe, with no major data scheduled for release. The G8 meeting
will take place tonight however.
One thing to look forward to however will be the listing of
Facebook shares (FB;us) on the NASDAQ in the U.S at 1am (AEST).
Facebook's 421 million shares were priced at $38 a piece last
night, valuing the social media giant at US$104 billion. This is
more than any other American company on its listing day. The
company has raised US$16 billion, which is the second most in
history behind only Visa. FB generates almost all of its revenue
Volume of shares traded came in at 2.0 billion today, worth
$5.98 billion. 226 shares were up, 841 were weaker and 332 ended
At 4.30pm AEST on the Sydney Futures Exchange, the ASX24
futures contract is up 0.34 pct or 14 pts to 4072.
Due to daylight savings, most major European markets are now
trading between 5pm (AEST) and 1.30am (AEST). Stocks are expected
to open in the red tonight.
Dow Futures are down, indicating that U.S stocks could open
lower tonight. Due to daylight savings taking place in the second
week of March in North America and the end of daylight savings in
Australia, U.S markets will now be trading between 11.30pm (AEST)
and 6am (AEST).
Turning to currencies, the Australian dollar (
) is trading below parity against the greenback for the fifth
consecutive day and buys US98.3 cents. The AUD is currently
trading at £62.3 pence and €77.6 cents. The AUD fell by 2 cents
over the week.
Australia is a commodity based economy, with coal and iron ore
accounting for around half of everything we export overseas. In
essence, when the going gets tough globally, there is fear of
less demand for our commodities, which tends to result in a
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