Local shares set to fall after Wall St shudders

AUSTRALIA'S sharemarket is tipped to drop nearly 1 per cent this morning when it opens after US and European markets suffered big falls on Friday.

By InvestSMART · 22 Oct 2012

By InvestSMART ·
22 Oct 2012

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AUSTRALIA'S sharemarket is tipped to drop nearly 1 per cent this morning when it opens after US and European markets suffered big falls on Friday.

The S&P 500 fell 1.7 per cent and the Dow Jones Industrial Average fell 1.5 per cent after disappointing profit results and trimmed forecasts spooked US investors.

The Nasdaq lost more than 2 per cent after the world's biggest company, Apple (down 3.6 per cent), and rival Microsoft (down 2.9 per cent) were caught up in a tech stock rout.

European stocks shed 1.2 per cent in value after the region's leaders appeared to make little progress at a summit of leaders in Brussels.

"In a celebrated instance of kicking the can down the road, the EU summit appears to have delayed any difficult decisions on the euro banking union until next year," a UBS economist, Paul Donovan, said.

"President Hollande of France suggested that a troika deal on Greece was within reach. This is a supreme statement of the obvious. Greece cannot leave the euro without threatening euro break-up, so Greece is in a strong position. Troika negotiations are all spin, not substance."

The Australian futures market was yesterday pointing to a 0.99 per cent fall on the local bourse today.

The Reserve Bank assistant governor, Guy Debelle, will deliver a speech to the Australian Securitisation Forum this afternoon.

Market watchers are also awaiting the release on Wednesday of inflation figures for the September quarter.

The figures are expected to show an increase in the annual inflation rate, adding impetus to the case for another interest rate cut in November.

The federal government is expected to release today its mid-year economic and forecasting outlook, which will contain an update on the budget for this year.

"There's a risk that could entail further tightening measures because the budget is running well behind the surplus," said Shane Oliver, the chief economist of AMP Capital.

Last week, the S&P/ASX 200 Index closed nearly 1.9 per cent higher for the week, after closing above the 4500 points level for the last three days.

with AAP

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Frequently Asked Questions about this Article…

Why is the Australian sharemarket tipped to fall when the ASX opens?

The local market was expected to open nearly 1% lower after US and European markets suffered big falls. Global selling—driven by disappointing profit results, trimmed forecasts and a tech stock rout—sent the S&P 500, Dow and Nasdaq lower, and Australian futures were pointing to a 0.99% fall for the ASX.

How did US markets affect global investor sentiment and the ASX?

US indices fell sharply (S&P 500 down 1.7%, Dow down 1.5%, Nasdaq more than 2%) after some companies reported weaker profits and trimmed forecasts. Losses in large tech names like Apple and Microsoft intensified the sell-off, which in turn weighed on global sentiment and local futures for the ASX.

What role did Apple and Microsoft play in the recent market moves?

Apple and Microsoft were caught up in the tech stock rout—Apple fell about 3.6% and Microsoft about 2.9%—which helped push the Nasdaq lower and contributed to the risk-off tone that affected markets worldwide, including Australia.

What domestic events should everyday investors watch that could move the ASX?

Investors should watch a speech by Reserve Bank assistant governor Guy Debelle to the Australian Securitisation Forum, the federal government’s mid‑year economic and forecasting outlook (due today), and upcoming September quarter inflation figures, all of which could influence market direction and interest rate expectations.

Could the September-quarter inflation figures affect interest rates?

Yes. The inflation figures due on Wednesday were expected to show an increase in the annual inflation rate, which the article says would add momentum to the case for another interest rate cut in November.

How did the S&P/ASX 200 perform recently despite global volatility?

Despite the global volatility, the S&P/ASX 200 finished nearly 1.9% higher for the prior week and had closed above the 4,500 points level for the last three days of that week.

What European developments were cited as weighing on markets?

European stocks fell after an EU summit produced little apparent progress, prompting commentary that difficult decisions—such as on the euro banking union—were being delayed. There was also discussion around Greece and troika negotiations, which added to regional uncertainty.

How might the federal mid‑year economic outlook influence everyday investors?

The mid‑year economic and forecasting outlook will include a budget update. Analysts warned the budget was running behind surplus expectations, which could prompt further tightening measures. That fiscal outlook could affect interest-rate expectations, government bond yields and investor confidence in local markets.