Fresh Europe jitters stoke bout of profit taking

AUSTRALIAN shares broke their two-day winning streak to fall 1 per cent as wary investors booked profits amid more gloomy data from Europe.

By InvestSMART · 6 Jan 2012

By InvestSMART ·
6 Jan 2012

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AUSTRALIAN shares broke their two-day winning streak to fall 1 per cent as wary investors booked profits amid more gloomy data from Europe.

The market slipped back following a lacklustre German bond auction and fresh concerns about the state of Europe's banks.

Energy, resources and industrial stocks led the market lower after two days of stellar gains driven by a jump in commodity prices. Even traditionally defensive sectors, including telecoms and healthcare, suffered amid the sell-off.

"It all seems a case of old-fashioned profit-taking," the Commsec chief economist, Craig James, said. "Investors, if they see the sharemarket rise in the current environment, they're going to lock in those gains as they go along."

At the close yesterday, the benchmark S&P/ASX200 index was down 45.1 points at 4142.7, while the All Ordinaries index was down 42.9 points at 4196.6.

Financial stocks shed 1.1 per cent after more record deposits with the European Central Bank showed how little confidence investors have in the region's financial sector, despite measures by the central bank and policymakers.

News that UniCredit, Italy's biggest bank, had to offer shares at a massive 43 per cent discount to get a ?7.5 billion ($9.4 billion) capital raising program sent bank shares tumbling in Europe and the US.

"The European banks have been showing for a little while now that they're nervous of lending to each other, and that's likely to continue," a Burrell Stockbroking adviser, Jamie Elgar, said.

One of the few Australian stocks to buck the trend was Transpacific Industries. It rose 0.6 per cent to 80.5?, despite news that the founder of the waste management company had launched legal action against his old business claiming damages of $4.6 million.

Dealers will now be looking to the US private sector jobs report and non-farm payrolls for more direction, although any bump in the road is likely to stoke another bout of profit-taking.

"There's no confidence that if you get one good set of figures the one after will be good as well," the Intersuisse director of equities, Andrew Sekely, said. "This is very much a day-to-day trading environment."

On the exchange, 1.2 billion shares were traded with a value of $2.7 billion.

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Frequently Asked Questions about this Article…

Why did Australian shares fall about 1% and break a two-day winning streak?

Australian shares slipped roughly 1% as investors booked profits amid fresh gloomy data from Europe. A lacklustre German bond auction and renewed concerns about the health of European banks prompted selling, reversing two days of gains driven by higher commodity prices.

Which market sectors led the decline and did defensive stocks fall too?

Energy, resources and industrial stocks led the market lower after prior commodity-driven gains. Even traditionally defensive sectors such as telecoms and healthcare suffered in the sell-off, as investors locked in recent gains.

How did worries about European banks affect Australian markets?

Concerns about European banks knocked financial stocks lower — record deposits at the European Central Bank signalled weak confidence in the region's banking sector. News of distressed capital raisings in Europe also fed global risk aversion and profit-taking on the ASX.

What happened with UniCredit and why should investors care?

Italy’s biggest bank, UniCredit, had to offer shares at a roughly 43% discount to raise about €7.5 billion, a move that sent bank shares tumbling in Europe and the US. That episode is a sign of stress in European banking and can increase volatility for global and Australian markets.

Which Australian stock bucked the market trend and what was the reason?

Transpacific Industries bucked the trend, rising about 0.6% to 80.5 cents despite news that its founder launched legal action against the company seeking $4.6 million in damages.

What economic data will traders watch next and how could it affect markets?

Dealers were looking to the US private sector jobs report and non-farm payrolls for fresh direction. Any unexpected result could prompt more profit-taking or short-term shifts in market sentiment, given the current day-to-day trading environment.

Are markets likely to stabilise quickly after this kind of sell-off?

The article suggests a short-term, day-to-day trading environment where confidence is low — even one good data point doesn’t guarantee the next will be good. That means investors should expect possible continued volatility rather than an immediate, sustained recovery.

How active was trading on the exchange during the sell-off?

Trading was fairly active: about 1.2 billion shares changed hands with a total value of approximately $2.7 billion on the exchange the day the market fell.