Investors bailed out of stocks, driving the Australian sharemarket deep into the red on heavy volume, as Middle-East friction was added to the toxic mix of the eurozone sovereign debt crisis and crumbling global growth outlook undermining sentiment.
Following another heavy loss on Wall Street last night, the S&P/ASX 200 index fell 39.2 points, or 0.89 per cent, to 4349.2 points after Israeli attacks on Gaza sparked fears of a destabilising flare up in the Middle-East.
The US S&P 500 index dropped 1.3 per cent after US retail sales fell well short of forecasts, declining 0.3 per cent in October, knocking hopes that US consumers would drive the recovery.
Sentiment remained muted on concerns Republican leaders would not support President Barack Obama’s proposed $US1.6 trillion of revenue raising over 10-years to reduce the country’s ballooning deficit.
The Australian dollar dropped 0.8¢ to $US1.0370 on the increase in geopolitical risks, as well as data that confirmed earlier reports that the Reserve Bank was indirectly intervening in the currency market to cap the dollar’s strength.
In October the Reserve sold $483 million in “other outright” transactions, almost certainly one or more global central banks, well above the average of less than $100 million in recent years.
“It’s not a huge amount, but it is cumulative, and if the RBA were to continue at this pace for some months it will steadily soak up a lot of additional demand for AUD,” Royal Bank of Scotland currency strategist Greg Gibbs said.
“While it appears to be a policy conducted under the radar, it has been widely reported and discussed in the street. It would not surprise if the RBA were quite happy with this. They would like the market speculating about their activities to damp the currencies rise.”
The Shanghai composite index was off 0.6 per cent at the close of the ASX, with banks leading the losses after a report revealed bad loans increased for the fourth straight quarter. The official confirmation of Xi Jinping as China’s premier provided a short-lived rally.
Japan’s Nikkei index bucked the weaker regional tone, climbing 1.4 per cent as the yen tumbled against the US dollar, providing welcome relief for exporters. Sentiment was also buoyed by expectations of a looming leadership change that would see a new government place greater pressure on the Bank of Japan to stimulate the economy.
Gold was steady at $US1726 an ounce and copper dropped 0.5 per cent to $US7606 a tonne as the global growth outlook was knocked by eurozone industrial production falling the most in three years.
The broader All Ordinaries index was down 40.1 points, or 0.91 per cent, at 4370.6. On the ASX 24, the December share price index futures contract was 45 points lower at 4355, with 29,607 contracts traded.
RBS Morgans analyst Bill Chatterton said heavy falls in the US had dragged the local market lower.
“That’s where the impact’s coming from,” Mr Chatterton said.
“There’s talk of fiscal cliffs and the European situation is taking a lot longer than the optimists were hoping.
“We’re dealing with reality really. The GFC hangover doesn’t just fix itself up in four or five years.”
Investors would need to brace for several more years of volatility, he said.
Comments by US President Barack Obama about raising taxes for the wealthy along with weak retail and manufacturing economic data there and in Europe have been cited as triggers for “risk-off” falls.
The Dow Jones Industrial Average dropped 185.23 points (1.45 per cent) to 12,570.95, its lowest close since June 26.
The “fiscal cliff” refers to the huge tax hikes and spending cuts that automatically come into force on January 1, and could send the world’s largest economy back into recession, if US Republicans and Democrats can’t reach a compromise.
Mining giant BHP Billiton fell 64 cents to $33.09, Rio Tinto dropped $1.00 to $56.85 and Fortescue dropped three cents to $3.97.
Three of the four major banks suffered losses.
ANZ shed 13 cents to $24.07, Westpac lost 21 cents to $24.64 and Commonwealth Bank was 40 cents lower at $58.69. National Australia Bank was the only bank to finish in the black, rising three cents to $23.27.
Qantas shares gained five cents, or 4.1 per cent, to $1.28 after it announced it would spend $100 million to buy back about four per cent of its issued stocks and would repay $650 million of debt ahead of its due date.
Seven Group shares closed 17 cents lower at $6.30.
National turnover was 1.4 billion shares, worth $3.6 billion, with 262 shares up, 673 shares down and 347 unchanged.