Fragile investor sentiment snapped today, knocking the Australian sharemarket into the red for the fifth straight session after the US authorised targeted air strikes in Iraq and the Reserve Bank downgraded its growth forecasts.
The news compounded market jitters surrounding escalating geopolitical tensions with Russia, the sharp deterioration in the eurozone economy and financial markets, and rising concerns over the impact of a rise in US interest rates next year.
Following the 0.5 per cent drop in the US S&P 500 to a four-month low last night the S&P/ASX 200 index was trading 0.3 per cent down in early trade. Selling accelerated on the Iraq news and the index closed 73.7 points, or 1.34 per cent, down at 5435.3 with losses across the board on heavy volume.
The Australian dollar slipped US0.3¢ to US92.40¢ but government 10-year yields slumped 11.7 points to a 14-month low of 3.301 per cent as investors scrambled for safe-haven assets and the 2014 growth forecast was cut by 0.5 per cent to 2.5 per cent.
US 10-year yields fell 10 points to a 16-month low of 2.36 per cent while gold jumped $US13 to $US1319 an ounce.
European equity markets fell last night and German two-year bund yields dropped below zero per cent after German industrial production grew just 0.3 per cent and the European Central Bank left interest rates despite strong evidence the region was dropping back into recession.
ECB president Mario Draghi said “somewhat volatile data … remains consistent with our expectation of a continued moderate and uneven recovery of the euro area economy” and that geopolitical risks had “intensified” preparatory work for an asset purchase program.
Stoking market jitters, NATO chief Anders Rasmussen warned Russian President Vladimir Putin to “step back from the brink” and that NATO would act decisively if Russia intervened in Ukraine.
The Shanghai composite index was up 0.3 per cent at the close of the ASX after the notoriously unreliable trade data showed a 14.5 per cent jump in exports and 3 per cent drop in imports.
Despite improving from extreme levels last year, analysts have shown ongoing divergence between Chinese exports and those of its counterparts, especially Hong Kong, indicating the export growth was likely flattered by “over-invoicing” to circumvent capital controls.
In Tokyo the Nikkei index tumbled 3 per cent.
Spot iron ore rose US0.1 per cent to $US96 a tonne yesterday while Dalian iron ore futures fell 1.4 per cent today.
Copper slipped 0.2 per cent $US6985 a tonne.
Lonsec senior client adviser Michael Heffernan said the dominance on trade of international events outside Australia’s control could diminish next week.
"We have got key reports coming out next week from Telstra and CBA and if they are good then sentiment can change on a sixpence,” he said.
On Friday, Rupert Murdoch’s News Corp announced a fall in net profit and big slide in revenue, due mainly to its newspapers.
Its shares slumped by 47 cents, or 2.6 per cent, to $17.90.
Online property advertiser REA Group’s expansion plans and 37 per cent profit growth failed to impress investors, with its shares plunging 8.65 per cent, or $4.05, to $42.78.
Rio Tinto was one of the few bright spots, with its shares rising 11 cents to $66.43 after it announced late yesterday a doubling of half-year profit.
Other resources stocks struggled, with BHP dropping 73 cents, or nearly two per cent, to $37.74 and Fortescue slipped 16 cents, or 3.4 per cent, to $4.56.
The banks fell, with Commonwealth Bank down $1.22 to $80.13, ANZ dropped 59 cents to $32.26, NAB fell 63 cents to $33.82 and Westpac shed 62 cents to $33.03.
The broader All Ordinaries index was down 71.1 points, or 1.29 per cent, at 5429.6.
The September share price index futures contract was down 73 points at 5376 points, with 44,656 contracts traded.
National turnover was 2.2 billion shares worth $5.8 billion.