Higher CPI figure sends shares tumbling

THE stock market closed lower yesterday after the release of worse-than-expected inflation data and as the US debt ceiling stalemate continued.

By InvestSMART · 28 Jul 2011

By InvestSMART ·
28 Jul 2011

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THE stock market closed lower yesterday after the release of worse-than-expected inflation data and as the US debt ceiling stalemate continued.

The benchmark S&P/ASX200 index slipped 35.9 points, or 0.78 per cent, to 4537.4, while the broader All Ordinaries index dropped 33.7 points, or 0.73 per cent, to 4612.6.

RBS Morgans private client adviser Bill Bishop said the release of unexpectedly high local inflation data had sent the market lower.

The consumer price index rose by 0.9 per cent in the June quarter, taking the annual rate of inflation to 3.6 per cent, from 3.3 per cent. The rise was more than most economists had expected. "The CPI is now outside the RBA's target band," Mr Bishop said. "It introduces a whole new ball game.

"People see all this bad news from overseas and they're not sure what's happening here."

He said intensifying concerns about the US debt-ceiling deadlock had also weighed on the market.

The White House and its divided Republican foes have failed to break an impasse that could see it default on its debt. Politicians in Washington now have a week to go before the US hits the August 2 deadline to raise the $US14.3 trillion ($12.92 trillion) debt ceiling.

In local trade, materials and resource stocks had a rough day, with Mirabela Nickel the worst performer in the top 200 stocks. The Perth-based miner's shares fell 17?, or 8.02 per cent, to $1.95, despite boosting nickel production at its flagship Brazilian mine by 20 per cent during the three months to June 30.

BHP Billiton fell 52? to $43.00, Rio Tinto was down 40? at $82.59.

The spot price of gold in Sydney closed at $US1624.30 per fine ounce, up $US10.30 from Tuesday's local close of $US1614 per ounce. Newcrest Mining rose 32?, or 0.8 per cent, to $40.50 at the close.

Banks and financials were also down, with Westpac worst hit, falling 34?, or 1.59 per cent, to $21.02. National Australia Bank fell 37? to $24.45, ANZ fell 27? to $21.28, while Commonwealth fell 40? to $49.82.

Telstra fell 1? to $3.02.

National turnover was 2.1 billion shares, worth $5 billion, with 426 shares up, 632 down, and 381 steady.

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Frequently Asked Questions about this Article…

Why did the ASX fall after the latest inflation (CPI) release?

The market slipped after Australia released worse-than-expected inflation data. The consumer price index rose 0.9% in the June quarter, taking annual inflation to 3.6% (from 3.3%). RBS Morgan’s Bill Bishop said the CPI is now outside the RBA’s target band, and that unexpected higher inflation weighed on investor sentiment, sending the S&P/ASX 200 down 35.9 points (0.78%) to 4,537.4 and the All Ordinaries down 33.7 points (0.73%) to 4,612.6.

What were the exact CPI numbers and why do they matter for investors?

The CPI rose 0.9% in the June quarter and the annual inflation rate moved to 3.6% from 3.3%. Those figures matter because higher-than-expected inflation can influence Reserve Bank of Australia policy expectations, increase market volatility, and change how investors price shares, particularly interest-rate sensitive sectors such as banks and property-related assets.

How did the US debt ceiling stalemate affect Australian shares?

The article says intensifying concerns about the US debt‑ceiling deadlock also weighed on the market. The White House and divided Republicans had not broken the impasse, with about a week to go before the August 2 deadline to raise the roughly US$14.3 trillion debt ceiling — heightening global risk aversion and putting additional pressure on stocks.

Which mining and materials stocks were hit hardest and why should investors care?

Materials and resource stocks had a rough day. Perth miner Mirabela Nickel was the worst performer in the top 200, falling 17 cents (8.02%) to $1.95 despite boosting nickel production by 20% in the quarter to June 30. BHP Billiton fell 52 cents to $43.00 and Rio Tinto slipped 40 cents to $82.59. Mining stocks are sensitive to global risk sentiment, commodity prices and inflation worries, so they can move sharply on broader market news.

What happened to bank stocks and what were the price moves?

Banks and financials were down on the day. Westpac fell 34 cents (1.59%) to $21.02, National Australia Bank fell 37 cents to $24.45, ANZ fell 27 cents to $21.28, and Commonwealth Bank fell 40 cents to $49.82. Bank shares are often affected by interest‑rate expectations and broad market risk sentiment — both of which were in focus after the CPI print and US debt worries.

Why did Mirabela Nickel shares drop even though it boosted nickel production?

The article notes Mirabela boosted nickel production by 20% during the quarter to June 30 but its shares still fell sharply. That highlights how broader market concerns — such as higher local inflation and global political risk from the US debt‑ceiling impasse — can outweigh company‑specific operational improvements and push resource stocks lower.

How did gold and Newcrest Mining perform amid the market moves?

The Sydney spot price of gold closed at US$1,624.30 per fine ounce, up US$10.30 from the previous local close. Newcrest Mining rose 32 cents (0.8%) to $40.50. Gold and gold‑miners can react differently to equity market moves; in this instance the gold price rose and Newcrest gained slightly despite the broader market fall.

How active was trading on the day and what was the market breadth?

National turnover was 2.1 billion shares worth about $5 billion. Market breadth was negative: 426 shares were up, 632 down and 381 steady, reflecting widespread selling across sectors after the inflation data and US debt‑ceiling concerns.