The Australian sharemarket reversed from the top of its trading range as bullish global equity market sentiment faded ahead of the US earnings season and concerns mounted over the sharp slowdown in Europe.
Following the 0.7 per cent drop on the US S&P 500 index last night the S&P/ASX 200 index fell 58.4 points, or 1.06 per cent, to 5452.5 as investors booked profits on stocks trading on stretched valuations.
European markets have been on the back-foot since last week, but three doses of weak German data, news US authorities planned to two sue two German banks and mounting pressure ahead of European Central Bank stress tests sparked average losses of 1.5 per cent last night.
The Australian dollar was little changed at US94¢ but government 10-year bonds fell 3.8 points to 3.535 per cent following the 6 point slump in US 10-years to 2.53 per cent.
“There were no shock news items, economic events or central bank speak that caused the moves,” Westpac strategist Graeme Jarvis said.
The move was consistently lower was traders focused on “more concrete” fundamentals that suggested “something more substantial” may be developing in bond, equity and credit markets he said.
The Shanghai composite index was off 0.6 per cent at the ASX after a slip in consumer inflation to 2.2 per cent and a slight improvement in producer inflation to minus 1.2 that suggested the country remained in the grip of deflationary forces.
In Tokyo the Nikkei index slipped 0.2 per cent.
After fining French bank BNP Paribas $US9 billion for breaching US sanctions on Iran and other rogue states US prosecutors signalled they have turned their sights on Germany’s Commerzbank, the country’s second biggest bank, and the fear is Deutsche Bank could face a hefty settlement fine too.
The region’s banks also face ECB financial stress tests around October, forcing many to clean up their balance sheets and take write-downs on badly performing loan portfolios.
Dalian iron ore futures dropped 0.6 per cent, offsetting a similar increase in the spot price to $US96.50¢ a tonne yesterday. Copper rose 0.2 per cent to $US7120 a tonne and gold rose $US7 to $US1323 an ounce.
All sectors fell other than gold with some of the biggest drops in defensive and high yielding stocks.
IG market strategist Evan Lucas said he thought that reflected concerns expressed in the US overnight that prices earnings ratios had ballooned out with markets at record highs and a pullback was likely.
“It is an interesting thing where the hammering is coming from with the big end: banks and defensive stocks taking a battering,” he told AAP.
“Are our share prices therefore overvalued ... that was the theme last night and what we are seeing considering what stocks are under pressure.”
The major banks finished lower, with ANZ down 41 cents to $33.18, while National Australia Bank dropped 32 cents to $33.27, Westpac lost 37 cents to $33.85 and Commonwealth Bank fell 53 cents to $80.79.
Telstra was down three cents to $5.29 and the supermarket owners fell, with Wesfarmers 39 cents lower to $42.63 and Woolworths giving up 42 cents to $35.89.
Making news, education provider Navitas was the loser of the day, down $2.18, or 31 per cent, to $4.86 after losing a major Macquarie University contract.
Shares in Westfield shopping centre empire spin-off Scentre Group gained after it raised more than $3 billion in what is thought to be one of the biggest non-bank bond raisings by an Australian company in Europe.
Shares in Scentre Group were one cent higher at $3.21.
The broader All Ordinaries index was down 56.3 points, or 1.02 per cent, at 5442.2.
The September share price index futures contract was 58 points lower at 5414 with 30,692 contracts traded.
National turnover was 1.5 billion securities worth $3.6 billion.