Dollar slides, investors flee under Europe's dark cloud

Marketwatchers were kept on edge this week by political news from Europe, where French and Greek voters took a left-turn towards parties that opposed the region's harsh austerity policies.

By InvestSMART · 12 May 2012

By InvestSMART ·
12 May 2012

Comments

Marketwatchers were kept on edge this week by political news from Europe, where French and Greek voters took a left-turn towards parties that opposed the region's harsh austerity policies.

By late yesterday, after poor Chinese industrial production data, the gloomy mood had pulled the Australian dollar towards parity with the greenback, the lowest it had been since December last year.

Currency strategists said the dollar would likely slip below parity overnight, as fears about the political situation in Greece continued to weigh on global markets.

For the week, the benchmark S&P/ASX200 index shed 113.4 points points, or 2.6 per cent, to 4282.6. The broader All Ordinaries index dropped 116.7 points, or 2.6 per cent, to 4342.7.

The ASX suffered its biggest one-day fall for the year on Monday, down 2.15 per cent, when investors responded to weak United States employment data, and elections in France and Greece.

Trading yesterday started weaker after JPMorgan Chase admitted it had lost $2 billion in the past six weeks by trading derivatives in a "flawed" hedging operation. The company's stock fell almost 7 per cent in after-hours trading in the US.

Among the local banks, ANZ was 11? lower at $22.04 after it became the last of the big four to pass on some of the Reserve Bank's interest rate cut.

National Australia Bank dipped 2? to $24.55, Westpac shed 18? at $22.72, and the Commonwealth Bank dropped 10? to $51.80.

Further unsettling news from the eurozone stirred fears of global growth, which in turn hit local resource and energy stocks.

BHP Billiton slipped 25? to $34.37, and Rio Tinto fell 87? to $61.07.

Despite the gloomy mood, some fund managers welcomed the pessimism, because they had been able to buy quality stocks at a discount price.

"I've never seen the average investor as negative as he is now, which I think is a very good thing," the executive director at Allan Gray Australia, Simon Marais, said.

"Once all the money's out of the market it can only come back in ... when everybody's gloomy and nobody is interested in the market, that's normally where the actual risk is pretty low."

Among other stocks, law firm Slater & Gordon was 3? lighter at $1.75 after it said it would book a $10 million writedown after the High Court decided not to grant its client leave to appeal a Federal Court ruling in the Vioxx action.

Trans-Tasman casino operator SkyCity Entertainment sagged 12? to $2.90 after it downgraded its profit expectations following weaker trading conditions, especially in Adelaide.

Garage doors and construction products supplier Alesco eased 1? to $2.06 after it again urged its shareholders to take no action on the $188 million takeover offer from Dulux.

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 Australian dollar slide toward parity with the US dollar this week?

The article says the Aussie weakened after political shocks in Europe — left-leaning results in France and Greece — combined with poor Chinese industrial production data. Currency strategists expected the dollar to slip below parity as fears about Greece and global growth weighed on markets.

How did the ASX perform amid the global market nerves?

According to the article, the benchmark S&P/ASX200 fell 113.4 points (about 2.6%) to 4,282.6 for the week, and the All Ordinaries dropped 116.7 points to 4,342.7. The ASX also recorded its biggest one-day fall for the year — down 2.15% on Monday — after weak US employment data and elections in France and Greece.

What market impact came from JPMorgan Chase admitting trading losses?

The article reports JPMorgan Chase said it lost US$2 billion over six weeks in a 'flawed' hedging operation in derivatives. That admission weakened trading and the bank’s stock fell almost 7% in after‑hours US trading, contributing to a negative market tone.

How did Australia's big banks react and how were their shares affected?

The piece notes ANZ was reported down to $22.04 after it became the last of the big four to pass on some of the Reserve Bank’s interest rate cut. National Australia Bank dipped to $24.55, Westpac to $22.72, and Commonwealth Bank to $51.80, with the article describing declines across the major banks as investors reacted to rate and market news.

What happened to major resource stocks like BHP Billiton and Rio Tinto?

The article says further unsettling eurozone news stirred fears about global growth, which hit local resource and energy stocks. It reported BHP Billiton slipping to $34.37 and Rio Tinto falling to $61.07 as part of those declines.

Is the market sell‑off creating buying opportunities for everyday investors?

Some fund managers in the article welcomed the pessimism because it allowed them to buy quality stocks at discounts. Simon Marais of Allan Gray Australia was quoted saying heavy negativity can be a good thing and that once money leaves the market it can come back when sentiment improves — a viewpoint some investors find useful when considering opportunistic buying.

Why did Slater & Gordon shares fall, and what does that mean for investors?

The article reports Slater & Gordon was down to $1.75 after saying it would book a $10 million writedown following the High Court’s decision not to grant leave to appeal a Federal Court ruling in the Vioxx action. For investors, that means the company is taking a near-term charge related to that legal outcome.

What corporate updates affected SkyCity and Alesco this week?

SkyCity Entertainment sagged to $2.90 after downgrading profit expectations following weaker trading conditions, especially in Adelaide. Alesco eased to $2.06 after again urging shareholders to take no action on the reported $188 million takeover offer from Dulux, according to the article.