Poor sentiment on the Australian sharemarket following a severe bout of risk aversion in the US last night was dealt two further blows today, erasing $22.4 billion in shareholder value.
With investor confidence already shaky following a sharply lower lead from Wall Street overnight, the Reserve Bank decided today to kept rates on hold and shifted to a neutral stance, sending the Australian dollar sharply higher.
The S&P/ASX 200 index initially did its best to shrug off the 2.3 per cent plunge in the US S&P/500 index, but it extended losses to finish 90.8 points, or 1.75 per cent, down at a six-week low of 5097.1.
“On present indications, the most prudent course is likely to be a period of stability in interest rates,” the Reserve Bank said.
Unwinding some of the Reserve’s jawboning of the dollar lower, the currency soared US1.5¢ to US88.90¢ as traders scrambled to cover short positions after the Reserve also dropped any reference to its “uncomfortably high” level.
Government bond yields largely shrugged off the news, with two –year yields rising 3.4 points to 2.713 per and 10-years slipping 1.5 points to 3.986 per cent.
However, the biggest knock to the market came from the US where the ISM manufacturing index slumped the most in 33 years, down 5.2 points to 51.3, casting doubt over US growth momentum just as the US Federal Reserve tapers its bond purchasing program.
Ignoring Fed tapering, US government 10-year yields fell 6 points to a three-month low of 2.59 per cent on safe haven demand.
ANZ strategists said that on balance they did not consider the outlook for the US economy to have changed materially, noting that the Markit PMI index had not displayed the large swings reported by the ISM.
“Signs that the Q3 2013 US inventory build was partly absorbed by demand through Q4 (particularly in the US) in our view reduced but did not eliminate the need for US inventory to adjust lower into 2014,” ANZ said.
“This process now is relatively well advanced with the fall in the ISM exaggerating the magnitude of the adjustment.”
In Tokyo, the Nikei index dived another 3.6 per cent, extending its losses this year to more than 10 per cent as the yen continued its surge against the US dollar, threatening exporters and traders using the yen to fund cheap carry trades.
Gold jumped $US10 to $US1256 an ounce while copper was little changed at $US7035 an ounce.
The Australian sharemarket suffered its heaviest one-day losses since August, with spooked investors reacting to a sharp fall in US manufacturing activity growth.
Stocks on Wall St also had their worst session since June.
CommSec market analyst Steve Daghlian said another factor at play in the losses was the Reserve Bank’s decision to leave Australian interest rates unchanged for a fifth consecutive month.
“The market started to pull back even more following that result, the Aussie dollar picked up significantly ... the rate cutting cycle seems pretty much over,” he told AAP.
The market’s heavyweight industries, banking and mining, fell by 1.7 per cent and 2.2 per cent respectively.
BHP Billiton closed 94 cents, or 2.6 per cent, down at $35.50, Rio Tinto shed $1.23 to $64.11 and Fortescue Metals lost 8.0 cents to $5.19.
National Australia Bank suffered the biggest falls of the banks, down 80 cents, or 2.4 per cent, to $32.39, Commonwealth Bank dropped $1.20 to $73.20, Westpac retreated 59 cents to $30.40 and ANZ was 53 cents lower at $29.30.
One of the rare stocks to buck the trend was REA Group, after the owner of property website realestate.com posted 37 per cent profit growth.
REA shares were the best performer among the top 200 stocks, up $2.08, or 5.0 per cent, at $43.78.
The broader All Ordinaries index was down 87.8 points, or 1.69 per cent, at 514.1.
The March share price index futures contract was 95 points lower at 5050, with 34,839 contracts traded. National turnover was 1.84 billion securities worth $5.4 billion.