More than $20 billion was wiped off the value of the Australian sharemarket today after bullish equity market sentiment was hit by rising geopolitical, credit market and global interest rate risks.
Improved Asian economic data did nothing to stop Australian stocks following the 2 per cent slump in the US S&P 500 index last night, with the S&P/ASX 200 index tumbling 76.5 points, or 1.36 per cent to 5556.5 despite a firming in the Chinese manufacturing PMI index and the domestic AiG PMI.
Last night Wall Street finished at the day’s low on heavy volume as the fear of a rise in US interest rates early next year, a strengthening Us dollar, heavy losses by Portugal’s Banco Espirito Santo, weak earnings in Europe, western world sanctions on Russia and Argentina’s technical default combined to break the bullish “camel’s back”.
Referring to solid US GDP data out on Thursday morning, Westpac strategist Graeme said it was often more important to note how a market traded according to a specific piece of news “rather than the news itself”.
“You know the old trading saying “if a market can’t rally on positive news then the market can’t rally”,” he cautioned.
Market attention is now on tonight’s non-farm payroll where a strong number, above the consensus forecast of 230,000, could stoke rate rise fears and prove negative for equity markets.
Also weighing on US sentiment was a 10 point plunge in the Chicago PMI index to 52.6 points and a 0.7 per cent surge in the US employment index, its fastest quarterly gain since 2008. Higher salaries threaten inflation and corporate earnings, but Alhambra Investment Partners strategist Jeffrey Snider noted it only went from “from a two-year low to slightly above a very weak trend”.
The Australian dollar was steady at $US92.90¢ after China’s official PMI index rose 0.3 points to 51.7 and the HSBC PMI was revised slightly lower to the same number.
Government 10-year yields rose 2.2 points to 3.528 per cent after US10-years held steady at 2.57 despite the equity market rout.
Argentina was forced to default on $US29 billion in debt after “holdout” investors in a 2005 debt restructuring succeeded in using US courts to block Argentina’s payment on restructured bonds unless they were also paid.
The Shanghai composite index bucked the weaker tone and was up 0.4 per cent at the close of the ASX.
In Tokyo the Nikkei index was off 0.6 per cent.
Spot iron ore slipped 0.3 per cent to $US95.60 tonne yesterday while Dalian iron ore futures fell another one per cent today.
Gold fell $US11 to $US1283 an ounce and copper was little changed at $US7110 a tonne.
“It is among one of the highest falls for the year so far, however there were bigger falls in February and March,” Lonsec senior client adviser Michael Heffernan said.
“You wouldn’t have to be a fortune teller to predict that we were going to be down given the steep declines in overseas markets.”
Mr Heffernan said the events in the US and Argentina have dominated market sentiment to overshadow news of a strong expansion in China’s manufacturing sector.
“A number of factors have coalesced (to pull markets down); Argentina’s bond default, nervousness over when US interest rates will go up, ongoing conflict in Israel and Ukraine as well as profit taking.”
In the resources sector, according to preliminary figures, BHP Billiton was 27 cents worst off at $38.41, while Rio Tinto had dropped 98 cents to $65.40 and Fortescue Metals was down 24 cents at $4.68.
Woodside Petroleum was down 60 cents at $41.92 after shareholders voted on a $US2.7 billion ($A2.92 billion) plan to buy back shares from Royal Dutch Shell. The results of the vote are yet to be released.
The major four banks were also down sharply.
The Commonwealth Bank had shed 93 cents to $82.82, ANZ had fallen 41 cents to $33.56, Westpac had lost 56 cents to $34.05 and NAB was 39 cents lower at $34.93.
Meanwhile, US unemployment figures will be released overnight and Monday will mark the start of Australia’s earnings season when the bulk of ASX-listed companies release profit results and forecasts.
The broader All Ordinaries index was down 75.5 points, or 1.34 per cent, at 5547.6 points.
The September share price index futures contract was 74 points lower at 5496 points, with 34,717 contracts traded.
National turnover was 1.64 billion shares worth $4.32 billion.