Investors retreat as European crisis worsens

The sharemarket closed over 1% lower after rumours that China was unlikely to inject capital into debt‑ridden European economies and Moody’s downgraded major French banks. Stocks opened slightly higher but lost gains as cautious investors reacted to the European concerns. The S&P/ASX 200 fell 66.9 points (1.6%) to 4005.8 and the All Ordinaries dropped 68 points (1.6%) to 4090.4.

Moody’s downgrade of Societe Generale and Credit Agricole, and putting BNP Paribas on negative watch, worsened market sentiment globally. Shaw Stockbroking’s Jamie Spiteri said Australian shares fell in line with other Asian markets and US futures after the Moody’s reports, contributing to the local market decline.

Comments from China’s Premier Wen Jiabao about increasing investment in the euro zone were tempered, which made a European bailout seem less likely to investors. Market commentators said any Chinese capital injection would likely depend on European countries taking tough deficit and job‑creation decisions rather than relying solely on China.

The healthcare sector led the fall, down about 3%. Cochlear was the worst performer, plunging 14.6% to $51.30 after a product recall. Financials fell 1.9% with big banks down (Commonwealth Bank −2.46%, Westpac −2%, NAB −3%, ANZ −1.55%). Telecoms bucked the trend, led by Telstra which gained about 2% to $3.02.

Cochlear’s shares fell sharply because the company announced a recall of a range of unimplanted hearing implants two days earlier. Investors were still reacting to that news, sending the stock down 14.6% to $51.30.

A Westpac‑Melbourne Institute study showed local consumer sentiment had rebounded, but global uncertainty—especially worries about European debt, Moody’s bank ratings and doubts over Chinese support—overrode that positive local survey and left investors with little appetite for risk.

Macquarie Private Wealth’s Lucinda Chan noted lacklustre demand for Italian bonds at a recent auction as indicative of the market mood. Commentators said many investors were simply 'marking time' until more decisive action on the Greek debt resolution and related European developments is seen.

Based on the article, investors should watch European debt headlines (including Greek debt updates), rating‑agency actions on banks, demand at bond auctions (like Italy’s), any signals about Chinese investment in Europe, and company‑specific news such as product recalls that can sharply move stocks (for example, Cochlear). These are the factors driving short‑term market sentiment described in the report.