Commodity falls take toll on mining stocks

THE sharemarket took another hit yesterday, with large falls in mining and energy stocks after commodity prices sagged overnight on rising fears of a global economic slowdown.

By InvestSMART · 16 Dec 2011

By InvestSMART ·
16 Dec 2011

Comments

THE sharemarket took another hit yesterday, with large falls in mining and energy stocks after commodity prices sagged overnight on rising fears of a global economic slowdown.

The S&P/ASX 200 Index gave up 50.7 points, or 1.2 per cent, to 4139.8. This took its loss since December 5 to 4.2 per cent.

The market finished in the red for the third-straight day amid concerns about Europe's inability to deal with its liquidity and solvency problems, and as industrial production in the euro zone proved weaker than expected. Economists warned that Europe could be heading into recession.

The dollar slipped to US98.78?, down from $US1.0016 on Wednesday. At close of trade, the euro was at $US1.2981, down from $US1.2983.

News that business conditions in China had beaten expectations with the Chinese Manufacturing PMI index hitting a two-month high failed to outweigh concerns about Europe.

The Australian dollar even lost ground against the euro, slipping to 76.06 euro cents from 76.87.

"The Australian dollar has been underperforming the euro in periods of high volatility throughout this crisis, and now that we've morphed into a concern about growth and European sovereigns it makes more sense," said National Australia Bank senior currency strategist Emma Lawson.

"The Aussie is a global growth currency. If the market is concerned that European growth is slowing, and since China exports a great deal to Europe and because Australia is reliant on China's growth, that's why it's weighing on the Aussie."

BHP Billiton lost 73?

(2.04 per cent) to $34.97, and Rio Tinto fell $1.81 (2.86 per cent) to $61.35 and Fortescue Metals was 15? lower

(3.19 per cent) at $4.54.

Among the materials, gold stocks were among the worst performers, with Newcrest Mining losing 93? (2.92 per cent) to $30.88.

Energy stocks also fell, led by Woodside Petroleum, which slipped 53? (1.68 per cent) to $31.10.

National Australia Bank closed down 38? (1.6 per cent) at $23.48, Westpac slipped 34? to $20.46, Commonwealth lost 75? to $48.63 and ANZ was down 19? at $20.78.

In more gloom for the retail sector, JB Hi-Fi issued a profit downgrade after the market closed. It said in a note to the ASX it expected earnings before interest and tax for the latest half-year to be about 5 per cent below its first-half last year.

Before the warning, the electronics and entertainment retailer had lost 24? (1.6 per cent), to $15.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

Why did the ASX fall and what caused the recent sharemarket drop?

The ASX fell after commodity prices sagged amid rising fears of a global economic slowdown. Markets were hit by concerns about Europe's liquidity and solvency problems and weaker-than-expected industrial production in the euro zone, which outweighed some positive Chinese data.

How did commodity falls affect mining stocks on the ASX?

Commodity weakness hit major miners hard: BHP Billiton fell about 2.04% to $34.97, Rio Tinto dropped about 2.86% to $61.35, Fortescue Metals slid about 3.19% to $4.54, and Newcrest Mining lost about 2.92% to $30.88. Mining stocks were among the biggest contributors to the market decline.

What happened to energy stocks like Woodside Petroleum during the sell-off?

Energy stocks fell alongside miners, led by Woodside Petroleum which slipped about 1.68% to $31.10, reflecting the broader commodity-driven weakness in the market.

How were Australia’s big banks affected by the market downturn?

Major banks fell on the day as investors pared back exposure: National Australia Bank closed down about 1.6% at $23.48, and other big banks including Westpac, Commonwealth Bank and ANZ also slipped, contributing to the market’s overall weakness.

Did currency movements influence investor sentiment, and what happened to the Aussie dollar?

Yes — currency moves fed into investor caution. The US dollar slipped, the euro was around US$1.2981, and the Australian dollar lost ground against the euro, slipping to about 76.06 euro cents from 76.87. NAB’s currency strategist noted the Aussie tends to underperform in periods of global growth concern because it’s a global growth-linked currency.

Did positive Chinese data offset the market’s concerns?

No. Even though Chinese manufacturing data beat expectations with the PMI hitting a two-month high, that improvement failed to outweigh worries about Europe’s economic outlook and its potential to slow global growth.

How big was the overall market move on the day and recent performance of the S&P/ASX 200?

The S&P/ASX 200 fell 50.7 points, or about 1.2%, to 4,139.8 on the day. That brought its loss since December 5 to roughly 4.2%, marking the third straight day the market finished in the red.

What did the JB Hi‑Fi profit downgrade mean for retail investors and the retail sector?

JB Hi‑Fi issued a profit downgrade after market close, saying EBIT for the latest half-year was expected to be about 5% below the same period last year. The warning added to gloom in the retail sector after the stock had already moved lower, signalling softer retail earnings could be a near-term risk for investors in retail shares.