THE sharemarket closed lower yesterday, dragged down by a late plunge in Fortescue Metals.
The S&P/ASX 200 Index fell 21.9 points, or 0.5 per cent, to 4339.4.
The materials sub-index dropped 0.7 per cent, while financials and energy both lost 0.4 per cent. Telecommunications was the only sub-index to post gains, adding 0.5 per cent.
Stocks in iron ore miner Fortescue Metals spiralled down during the final half-hour of trade. It finished 48?, or 13.8 per cent, down at $2.99.
BBY analyst Mike Harrowell said "the penny was dropping" among investors about Fortescue's precarious position.
If Fortescue breached its loan agreements, all of its debt, about $9 billion gross, would be payable immediately.
"Once you're in breach of your [covenant] ratios, all debt is payable," Mr Harrowell said.
BHP dropped 7?, or 0.2 per cent, to $32.78 while Rio Tinto lost 4?, or 0.07 per cent, to $55.05.
The market had been trading slightly lower before the drop from Fortescue, as investors waited on a US Federal Reserve meeting, where chairman Ben Bernanke is expected to announce a new round of quantitative easing.
"It does seem like there was a lot of positioning ahead of the FOMC [Federal Open Markets Committee] meeting," said Stan Shamu, market strategist at IG Markets. "No one really wants to overcommit. They're not too sure what's happening."
Mr Shamu said investors wanted more details from Mr Bernanke on how the Federal Reserve would act on QE3.
"Judging from recent price action in the market, it seems like everyone is trying to price in a positive outcome."
All the big four banks posted losses yesterday. Westpac dropped 16?, or 0.7 per cent, to $23.80, NAB lost 12?, or 0.5 per cent, to $25.28, CBA fell 4?, or 0.1 per cent, to $55.02 and ANZ slipped 6?, or 0.25 per cent, to $24.14.
Myer reported a full-year earnings fall of 14.3 per cent, marginally better than its guidance of 15 per cent provided earlier this year. The stock suffered as the department store failed to provide any plans to tackle the tough retail environment, dropping 2?, or 1.1 per cent, to $1.83. Rival David Jones fell 5?, or 2.1 per cent, to $2.35.
In the media sector, the competition watchdog delayed a decision on the potential acquisition of Consolidated Media by Kerry Stokes' Seven Group amid concerns about TV sports rights. Seven fell 5? to $7.65, while ConsMedia slipped 1? to $3.41.
Frequently Asked Questions about this Article…
Why did the S&P/ASX 200 close lower yesterday?
The S&P/ASX 200 fell 21.9 points (about 0.5%) to 4,339.4, largely driven by a late plunge in Fortescue Metals. Materials, financials and energy sub‑indexes posted losses while only telecommunications finished higher, so the Fortescue move weighed on the broader market.
What happened to Fortescue Metals and why did its share price drop so sharply?
Fortescue’s shares spiralled down in the final half‑hour of trade, finishing down about 48 cents (roughly 13.8%) to $2.99. Analysts suggested investors were realising Fortescue’s precarious position, including concerns it could breach loan agreements tied to its debt.
What are the risks if Fortescue breaches its loan agreements?
If Fortescue were to breach its loan covenants, its lenders could demand immediate repayment of all its debt. The article notes the company has roughly $9 billion of gross debt, which would be payable if covenants were breached.
How did other major miners like BHP and Rio Tinto perform during the sell‑off?
BHP fell around 0.2% to $32.78 and Rio Tinto lost about 0.07% to $55.05 — both slipped after Fortescue’s late sell‑off, contributing to weakness in the materials sector.
How did the big four banks fare and what were the stock moves?
All four major banks posted losses: Westpac dropped about 0.7% to $23.80, NAB lost 0.5% to $25.28, CBA fell 0.1% to $55.02 and ANZ slipped about 0.25% to $24.14, reflecting broad market softness on the day.
What happened with Myer and how did its results affect the share price?
Myer reported a full‑year earnings fall of 14.3%, slightly better than earlier guidance of a 15% fall, but the department store did not outline plans to tackle tough trading conditions — the stock dropped around 2% to $1.83.
Why did Seven Group and Consolidated Media shares move and what did the competition watchdog do?
The competition watchdog delayed a decision on Seven Group’s potential acquisition of Consolidated Media amid concerns about TV sports rights. Seven fell about 5% to $7.65 and Consolidated Media slipped roughly 1% to $3.41 on the news.
How did expectations around the US Federal Reserve and QE3 affect investor behaviour?
Investors were cautious ahead of a US Federal Reserve meeting where Ben Bernanke was expected to outline a new round of quantitative easing (QE3). Market strategists said many investors were positioning conservatively and waiting for more detail on how the Fed would act, which contributed to subdued trading before the Fortescue drop.
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