Investors rebuff US efforts to tame debt crisis

DOMESTIC shares closed lower yesterday as the congressional deal to resolve US debt issues failed to allay investor concerns about the faltering American economy.

By InvestSMART · 3 Aug 2011

By InvestSMART ·
3 Aug 2011

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DOMESTIC shares closed lower yesterday as the congressional deal to resolve US debt issues failed to allay investor concerns about the faltering American economy.

The benchmark S&P/ASX200 index ended the session down 64.2 points, or 1.43 per cent, at 4433.6, while the broader All Ordinaries index was down 62.8 points, or 1.37 per cent, at 4510.3.

Lawmakers in the US House of Representatives agreed early yesterday to raise the limit on US sovereign debt, green-lighting at least $US2.1 trillion ($19 trillion) in spending cuts over the next decade.

An IG Markets research analyst, Ben Potter, said the move failed to ease market concerns about the American economy. "Pretty much all of the good work that happened [on Monday] was undone," Mr Potter said. "This deal they're signing at the moment is really going to cut back spending, which is going to weigh on the economy. Markets also did not like the economic news overnight at all."

The US manufacturing sector was flat in July, the Institute of Supply Management's indexed survey of purchasing managers showed.

Mr Potter said the widely expected decision by the Reserve Bank of Australia to keep interest rates on hold was welcomed by the market.

Locally, the big banks had a rough day, with National Australia Bank down 52?, or 2.12 per cent, at $23.97, Westpac down 44?, or 2.11 per cent, at $20.37, ANZ down 47?, or 2.21 per cent, to $20.82 and Commonwealth down 67? at $49.42.

Among healthcare stocks, CSL fell $1.01 to $30.22, and Fisher and Paykel Healthcare fell 7? to $2.

Resource stocks were also down. BHP Billiton fell 73?, or 1.73 per cent, to $41.57, and Rio Tinto fell $1.47, or 1.8 per cent, to $80.05. Aquarius Platinum was the worst performing stock in the top 100, falling 22?, or 5.03 per cent, to $4.15.

The price of gold in Sydney closed at $US1624.60 per fine ounce, up $US10.66 from $US1613.94 on Monday. Gold miner Newcrest rose 43?, or 1.09 per cent, to $40.03.

Some property stocks withstood the sell-off, with Westfield Retail Trust up 3? at $2.49 and Stockland up 2? at $3.06. Kathmandu finished higher after it forecast better than expected earnings. Its shares rose 11?, or 6.29 per cent, to $1.86.

Preliminary national turnover was 1.87 billion shares, worth $4.65 billion, with 352 shares up, 706 down, and 356 steady.

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Frequently Asked Questions about this Article…

Why did Australian shares fall yesterday and what role did the US debt deal play?

Australian shares fell after investors reacted to a US congressional deal to raise the sovereign debt limit. Although lawmakers approved lifting the limit and green‑lighting at least US$2.1 trillion in spending cuts over the next decade, analysts said the move didn’t ease market concerns about the US economy. Weak US economic news, including a flat US manufacturing reading, also weighed on sentiment and helped push the ASX lower.

How did the S&P/ASX 200 and the All Ordinaries perform?

The benchmark S&P/ASX 200 ended the session down 64.2 points (‑1.43%) at 4,433.6. The broader All Ordinaries was down 62.8 points (‑1.37%) at 4,510.3.

What happened to the big Australian bank stocks and what were the moves in share prices?

Major bank stocks had a rough day: National Australia Bank fell 52 cents (‑2.12%) to $23.97, Westpac lost 44 cents (‑2.11%) to $20.37, ANZ dropped 47 cents (‑2.21%) to $20.82, and Commonwealth Bank fell 67 cents to $49.42. The declines were part of the broader market sell‑off linked to global economic worries.

How did resource and mining stocks trade, including BHP and Rio Tinto?

Resource stocks were weaker. BHP Billiton fell 73 cents (‑1.73%) to $41.57, while Rio Tinto dropped $1.47 (‑1.8%) to $80.05. Aquarius Platinum was the worst performer in the top 100, down 22 cents (‑5.03%) to $4.15.

What happened to gold and gold miners on the day?

The price of gold in Sydney closed at US$1,624.60 per fine ounce, up US$10.66 from the prior session. Gold miner Newcrest gained 43 cents (1.09%) to $40.03, reflecting the stronger gold price.

Which property and retail stocks held up or rose despite the sell‑off?

Some property stocks resisted the sell‑off: Westfield Retail Trust rose about 3% to $2.49 and Stockland was up about 2% at $3.06. Retail and leisure retailer Kathmandu finished higher after forecasting better‑than‑expected earnings, with its shares up 11 cents (6.29%) to $1.86.

Did central bank or economic data developments in Australia influence markets?

Yes. The Reserve Bank of Australia’s widely expected decision to keep interest rates on hold was welcomed by the market, but international factors — notably the US debt negotiations and mixed US economic data (ISM manufacturing was flat in July) — dominated market sentiment.

What was overall market activity like (turnover and breadth)?

Preliminary national turnover was 1.87 billion shares worth $4.65 billion. Market breadth showed more losers than winners: 352 shares were up, 706 were down, and 356 were steady.