DOMESTIC shares suffered their largest fall in more than four weeks as renewed concerns over Europe's ability to manage its debt crisis and signs of a slowing Chinese economy sliced more than 2 per cent from the local market.
Rising investor optimism of the past week that Europe was tackling its financial problems came to a grinding halt yesterday as German politicians dampened hopes of an imminent announcement of a comprehensive package to recapitalise the region's banks and a plan to boost the firepower of an all-important stabilisation fund.
At the close on Tuesday, the benchmark S&P/ASX 200 Index was down 88.5 points, or 2.07 per cent, while the broader All Ordinaries Index was 2.04 per cent weaker at 4249.5. The Australian dollar also dropped US1? lower in the local session, weighed down by Europe concerns. Last night it was trading at US102.04?, down from US103.07? on Monday.
The falls come as today marks the anniversary of the 1987 Black Monday crash when sharemarkets around the world nosedived. At the time, Wall Street lost nearly a quarter of its value.
While a significant announcement is still due at the weekend European Union leaders' summit in Brussels, German officials suggested more work will be needed to bring an end to the euro zone crisis.
German Chancellor Angela Merkel's office knocked down what it called "dreams" that the last word in taming the crisis will be reached in an October 23 summit.
And in a sign of continuing crisis, ratings agency Moody's warned France in a report on Monday it might place a negative outlook on its AAA credit rating in the coming months, because the nation's financial strength had weakened.
Australian sharemarket losses accelerated as official figures released from China showed its massive economy pulled back from fast growth in the third quarter.
China's economy grew at an annual pace of 9.1 per cent in the quarter, down from 9.5 per cent in the previous three months, coming slightly below consensus forecasts as measures to rein in inflation appear to be taking hold. Despite the slowdown, analysts said China was on track for a soft landing rather than a shock.
Prior to the release of the figures, a warning on Monday night from high-profile hedge fund manager Jim Chanos in New York that China was heading for a hard economic landing also weighed on globalmarkets.
Commonwealth Bank of Australia credit market analyst Alex Stanley said the relative optimism that has returned to markets in recent weeks has been undercut by "setback and disappointment" in Europe. "The fiscal problems in Europe are structural and there are implementation risks facing any new crisis policies."
In local trade, resource stocks were the hardest stocks hit. Banks and financials were also sold off heavily.
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Frequently Asked Questions about this Article…
What caused the recent big ASX fall and why did investors turn cautious?
The sell-off was driven by renewed worries about Europe’s ability to manage its debt crisis and signs of a slowing Chinese economy. German politicians dampened hopes of an imminent bank-recapitalisation package and a stronger stabilisation fund, while weaker-than-expected Chinese growth numbers added to global concern, slicing more than 2% from the local market.
How much did the S&P/ASX 200 and All Ordinaries fall during the drop?
At the close the S&P/ASX 200 was down 88.5 points, or 2.07%, while the broader All Ordinaries Index fell about 2.04% to 4,249.5.
Which sectors were hardest hit in the market sell-off?
Resource stocks suffered the largest losses, and banks and other financials were also sold off heavily during the downturn.
How did the Australian dollar react to the market weakness?
The Australian dollar weakened on the session, falling by roughly one US cent. It was trading around US$1.0204, down from about US$1.0307 earlier in the week.
What European developments unsettled investors and affected markets?
German officials dampened expectations of an immediate comprehensive plan to recapitalise banks and boost the euro‑zone stabilisation fund, and Chancellor Angela Merkel’s office pushed back against hopes that the crisis would be solved at the October 23 summit. Those setbacks, plus a Moody’s warning that it may place France’s AAA rating on negative outlook, renewed market concerns.
What did the latest Chinese economic data show and how did it influence markets?
China’s economy grew at an annual pace of 9.1% in the quarter, down from 9.5% in the prior quarter and slightly below consensus forecasts. While some analysts said this pointed to a likely soft landing, the slower growth added to global market pressure, especially after high‑profile warnings of a possible hard landing.
What did analysts from the Commonwealth Bank say about the market mood?
Commonwealth Bank credit market analyst Alex Stanley said recent optimism had been undercut by 'setback and disappointment' in Europe, noting that fiscal problems in Europe are structural and that there are implementation risks with any new crisis policies.
What key events should everyday investors watch after this sell-off?
Investors should watch the upcoming European Union leaders’ summit for any announcements on bank recapitalisation or boosts to the stabilisation fund, follow further Chinese economic releases for signs of growth momentum, and monitor credit‑rating developments such as any Moody’s review of France that could affect market sentiment.
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