The Australian sharemarket tumbled along with global markets as geopolitical tensions over Ukraine ratcheted up and on fears metals prices had further to fall as China “disciplined” the country’s lenders.
Following the 1.2 per cent drop in the US S&P 500 index last night the S&P/ASX 200 index fell 83.2 points, or 1.54 per cent, to 5329.4 as bellwether industrial metal copper extended its loss to fresh four-year low of $US6400 a tonne, signalling distressed selling of collateral remained in force.
Market pundits are suggesting China will once again step in with a bout of stimulus, but the view was mounting that Chinese authorities were intent on forcing free-market risks onto banks and investors in risky products.
“I’m afraid that sometimes certain individual cases of such defaults are hardly avoidable... ...We don’t want to let today’s stepping stone become tomorrow’s stumbling block,” Chinese Premier Li Keqiang said yesterday.
Spot iron ore bounced 4 per cent to $US111.50 a tonne yesterday, but steel rebar resumed its slide with a 0.7 per cent drop today.
Deutsche Bank analysts wrote in a report that copper was less vulnerable than iron ore to concerns about the use of commodities as collateral to obtain credit in China.
“We do not expect a complete end to copper financing... ...In contrast to copper, we believe that iron-ore financing is more vulnerable to unwind as iron-ore positions are typically unhedged,” they said.
The Shanghai composite index was off 0.5 per cent at the close of the ASX.
In Tokyo the Nikkei index fell 3.2 per cent as the yen surged against the US dollar on safe-haven buying.
The Australian dollar slipped US0.4¢ to $US90.10¢ and government 10-year yields slumped 12.5 points to 4.044 per cent on safe haven demand.
US benchmark 10-years also tumbled 10 points overnight to 2.645 per cent despite expectations the US Federal Reserve will announce another $US10 billion taper to its bond purchasing program next week.
Westpac economist Elliot Clarke said that recent data had been much weaker than Fed forecasts, but the Fed would “almost certainly” announce another cut to its bond buying program.
“Said decision will be due to expectations that better weather will beget much more favourable data outcomes as well as the (Fed’s) position that tapering has a neutral impact on real activity,” he said.
IG market strategist Stan Shamu said weaker than expected Chinese economic data had weighed upon market sentiment for most of the week.
But investors were now more concerned about what could happen after a controversial referendum on Crimea becoming part of Russia is held over the weekend.
"Going into the weekend, people would have really wanted to see a bit of improvement in the Ukraine-Russia situation, but it continues to escalate,” Mr Shamu said.
"It’s a situation of safety first at the moment and as a result equities are really suffering heavily."
Official Chinese figures released late yesterday showed a sharp decline in industrial output in February, adding to concerns about the economic outlook for Australia’s biggest trading partner.
Russia’s decision to position more troops near the Ukrainian border ahead of this weekend’s referendum in Crimea has also spooked investors globally.US and Russian diplomats are due to meet in London in a bid to defuse the crisis.
Russia has been warned of a serious backlash over the referendum in Crimea, a vote which the West says is illegal.
On the market, the resources sector fell heavily, with BHP Billiton dropping 74 cents to $35.66, Rio Tinto lost $1.57 to $61.50 and Fortescue Metals dumped 14 cents to $4.98.
Among the major banks, Westpac shed 60 cents to $33.65, Commonwealth Bank dropped 71 cents to $75.25, ANZ weakened 36 cents to $31.87 and National Australia Bank was 43 cents lower at $34.33.
Telstra sagged seven cents to $5.01.
The broader All Ordinaries index was down 82 points, or 1.51 per cent, at 5347.1 points.
The March share price index futures contract was down 87 points at 5326 points, with 53,326 contracts traded.
National turnover was 1.48 billion securities worth $3.9 billion.