Hopes for a relief rally as US stocks lead plunge

THE share market fell to its lowest point in almost a year yesterday as investors fretted over the weakening economy in the US.

By InvestSMART · 4 Aug 2011

By InvestSMART ·
4 Aug 2011

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THE share market fell to its lowest point in almost a year yesterday as investors fretted over the weakening economy in the US.

The benchmark S&P/ASX200 index slumped 100.8 points, or 2.27 per cent, to 4332.8 points while the broader All Ordinaries index dropped 102 points, or 2.26 per cent, at 4408.3 points.

US stocks fell heavily overnight as poor economic data overshadowed a congressional deal to raise the country's debt ceiling and avoid default. The benchmark Dow Jones Industrial Average fell 2.2 per cent.

A research analyst with IG Markets, Ben Potter, said the local market had endured a "pretty ugly" day's trading.

"It's all on the back of disappointing stuff out of the US," he said.

"It seems the [US] debt issue has been forgotten about already and everyone's focusing on the terrible growth data [in the US]. We had GDP on Friday, manufacturing on Monday and [then] personal spending dropped for the first time in two years," Mr Potter said .

"So everyone is seriously questioning whether the US economy is actually recovering at all and if it's headed for a double-dip recession."

Mr Potter said disappointing Australian retail figures yesterday had affected the local currency but had had little effect on the share market.

Retail spending fell 0.1 per cent in June, according to the Bureau of Statistics. Economists' forecasts had centred on a 0.4 per cent rise in retail sales in the month.

Mr Potter said the outlook for markets was cloudy but, given that US markets had been down for eight days in row, it could be time for a relief rally.

In resources, global miner BHP Billiton fell $1.42, or 3.42 per cent, to $40.15, while Rio Tinto dropped $2.45, or 3.06 per cent, to $77.60.

Among the major banks, National Australia Bank slid 77? to $23.20, Westpac lost 27? to $20.10, ANZ fell 53? to $20.29 and the Commonwealth Bank dropped 87? to $48.55.

Ramelius Resources rose 8? to $1.495 after it forecast a rise of more than four-fold in full-year, gross profit on the back of soaring production and gold prices. The price of gold in Sydney rose to $US1669.43 per fine ounce, up $US44.46 on Tuesday.

Residential developer AV Jennings was steady at 45? after it posted a 34 per cent lift in annual profit but flagged a softening market.

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Frequently Asked Questions about this Article…

What caused the ASX200 and All Ordinaries to slide to near one‑year lows?

The local market slump was driven mainly by weak US economic data that overshadowed a congressional debt ceiling deal. Investors reacted to disappointing US GDP, manufacturing and a drop in personal spending, which fuelled concerns the US economy may not be recovering and could head for a double‑dip recession.

How much did the S&P/ASX200 and All Ordinaries fall on the day of the report?

The S&P/ASX200 slipped 100.8 points (about 2.27%) to 4,332.8 points, while the broader All Ordinaries dropped 102 points (about 2.26%) to 4,408.3 points.

Did US stock market moves influence the Australian share sell‑off?

Yes. US stocks fell heavily overnight — the Dow Jones Industrial Average was down about 2.2% — and poor US growth data was cited as the main driver of the Australian sell‑off, according to IG Markets research analyst Ben Potter.

How did major miners such as BHP Billiton and Rio Tinto perform during the market fall?

Major miners were weaker: global miner BHP Billiton fell $1.42 (about 3.42%) to $40.15, and Rio Tinto dropped $2.45 (about 3.06%) to $77.60 on the day reported.

What happened to the big Australian banks during the downturn?

Major banks also declined in the sell‑off. National Australia Bank fell to $23.20, Westpac traded around $20.10, ANZ was near $20.29 and Commonwealth Bank dropped to $48.55 on the same trading day.

Why did Ramelius Resources shares rise and what does that mean for investors?

Ramelius Resources rose to $1.495 after forecasting more than a four‑fold rise in full‑year gross profit, driven by soaring production and higher gold prices. For investors, that kind of profit upgrade can signal stronger company fundamentals and commodity exposure benefiting from rising gold.

What did recent Australian retail spending data show and did it affect markets?

Australian retail spending fell 0.1% in June, while economists had expected a 0.4% rise. According to the article, the weaker retail print affected the local currency but had little impact on the overall share market that day.

Is the market likely to see a relief rally after the sell‑off?

The outlook was described as cloudy, but analyst Ben Potter noted US markets had been down for eight consecutive sessions, suggesting it could be time for a relief rally. That said, sentiment will depend on upcoming economic data and whether US growth concerns ease.