Market claws back losses after bank deposit fright
The benchmark S&P/ASX 200 Index welcomed August, finishing up 1.2 points at 5053.3. The flat finish came after manufacturing data from China came in as expected and US Federal Reserve chairman Ben Bernanke said it would be business as usual with its stimulus efforts.
Modest gains began early in trade, with the ASX buoyed by the Australian dollar sinking to US89.10¢ - a three-year low - amid growing speculation that the Reserve Bank would cut interest rates next week.
But the initial gains were soon eroded. Bank stocks tumbled about 2 per cent, pulling the broader market, which was generally trading in positive territory, into the red after an incorrect report in The Australian Financial Review was picked up by local media outlets and global wire service Reuters.
The AFR reported that the federal government was planning to tax bank deposits between 0.5 and 1 per cent to fund a bank bailout package, if ever needed. Instead, those figures should have been 0.01 and 0.05 per cent - a big difference.
After the correction the banks clawed back some of their losses, but still finished well in the red. Commonwealth Bank closed $1.09, or 1.5 per cent, weaker at $73.12. NAB shed 50¢, or 1.6 per cent, to $30.73, ANZ fell 37¢, or 1.2 per cent, to $29.39, while Westpac dipped 2¢, or 0.06 per cent, to $30.87.
Bank of America Merrill Lynch chief economist Saul Eslake was baffled by the government's proposal, saying no depositor in an Australian bank had lost a cent since the 1890s.
"'It's a dopey idea for a dopey scheme," Mr Eslake said.
He said shares in the banks had initially taken a hit because investors had assumed the deposit levy's cost would be funded by bank profits.
"The market reaction is probably an overreaction, but an understandable initial one."
The big miners finished higher, despite HSBC figures showing China's manufacturing production shrank in July, with its PMI index down to 47.7 points, as expected, from last month's 48.2.
BHP Billiton advanced 53¢, or 1.5 per cent, to $35.17, while Rio Tinto was up 43¢ at $57.94.
The supermarket chain owners were also higher, with Woolworths firming 19¢ to $33.51 and Wesfarmers up 18¢ at $40.74.
Frequently Asked Questions about this Article…
The S&P/ASX 200 closed up just 1.2 points at 5,053.3 after a volatile session. Early gains from a weaker Australian dollar and steady global cues were eroded mid‑day when an incorrect media report about a bank deposit tax spooked investors, but the market recovered enough to finish essentially flat.
Bank shares fell about 2% after The Australian Financial Review incorrectly reported the government was planning a 0.5–1% tax on bank deposits. The figures should have been 0.01–0.05%, so the initial sell‑off — which pulled the market into the red — was driven by the misreporting and was later partly reversed as the error became clear.
After the midday scare the banks finished lower: Commonwealth Bank closed $1.09 (1.5%) weaker at $73.12; NAB fell $0.50 (1.6%) to $30.73; ANZ dropped $0.37 (1.2%) to $29.39; and Westpac dipped $0.02 (0.06%) to $30.87.
The sharp move was sparked by an inaccurate report and economists like Saul Eslake called the proposal baffling. The reported 0.5–1% figures were wrong — the story should have quoted 0.01–0.05% — so the episode suggests investors should verify reports before reacting rather than assume a major deposit levy is imminent.
Big miners finished higher: BHP Billiton gained $0.53 (1.5%) to $35.17 and Rio Tinto rose $0.43 to $57.94. They advanced despite HSBC data showing China’s manufacturing PMI fell to 47.7 in July, which indicates miners can still rally even when some economic indicators weaken.
The Australian dollar fell to about US$0.8910 — a three‑year low — amid growing speculation the Reserve Bank might cut interest rates next week. That weaker currency initially helped lift the ASX, contributing to early modest gains.
Yes. Ben Bernanke said the Fed would continue its stimulus efforts — effectively ‘business as usual’ — and that, together with China manufacturing data coming in as expected, helped underpin markets and contributed to the overall flat finish.
Today’s episode shows markets can overreact to incorrect or misreported news. As the article notes, the reaction was “probably an overreaction, but an understandable initial one.” Everyday investors should check reliable sources and context before making hasty decisions based on a single report.
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