Market ends week on low note as investors get jitters
This week was dominated by political events in the US, where bickering between Republicans and Democrats forced the government into a partial shutdown.
The shutdown itself - where government employees were forced to take an unwanted and unpaid break - was a consequence of a failure to pass a government funding deal.
Australian investors spent the week adapting to it all but they seemed to become increasingly nervous as the shutdown dragged on.
There was a definite change in tone from last week, when investors appeared to be unperturbed by the possibility of the shutdown and helped the sharemarket to close on a five-year high.
Things were different once the shutdown actually happened.
For the week, the benchmark S&P/ASX 200 fell 99.1 points, or 1.9 per cent, to 5208, while the broader All Ordinaries Index fell 96.4 points, or 1.8 per cent, to 5205.9 points.
Economists have been pointing out that past US government shutdowns have had different consequences, with some shutdowns failing to worry markets at all.
But, by Friday, the level of concern had risen.
"The disagreements within US Congress have reached a point that could significantly destabilise the US economy and disrupt financial markets," St George chief economist Besa Deda said.
"The US has typically been in similar situations before in the past and Congress has usually avoided a catastrophic event at the 11th hour. However, the extreme deadlock between opposing parties is worrisome and, at present, the parties appear no closer to compromise."
She warned that if the shutdown dragged on, it could potentially take a "sizeable chunk" from fourth-quarter gross domestic product growth. But that would be dwarfed by a potentially bigger problem, which is looming.
"The consequences [of] failing to raise the US debt ceiling in time would be more damaging and the negative impact could be longer lasting," she said. "Even the prospect of default would be disruptive for financial markets and poses a downside risk to economic growth."
National Australia Bank economist Rob Henderson said the impact of the US shutdown on Australia's economy was unlikely to be significant if the issue was resolved before too long.
"The more important US fiscal issue is the debt ceiling, which needs to be lifted by October 17 if a default on debt servicing by the US government is to be avoided," he said.
"This has the potential to be far more catastrophic for the US economy, markets and the global economy. Hence, developments on that front need careful monitoring over the next couple of weeks."
Next week, financial reports from some of Australia's big banks and quarterly earnings reports from the US could shift the focus of investors away from macro-economic issues.
For the week, Leighton Holdings fell $2.43, or 12.7 per cent, to $16.74, after former chief executive Wal King denied he had knowledge of the construction company's allegedly corrupt dealings in Iraq.
Linc Energy fell 35¢, or 21.7 per cent, to $1.26, after CEO Peter Bond said it had become too difficult for medium-sized firms to increase their share price in Australia, prompting the company to delist from the Australian Securities Exchange and join the Singapore market.
Seven West Media fell 8¢, or 3.2 per cent, to $2.42. The company has promoted the head of its magazines division to chief operating officer as it restructures its management to better focus on new technologies and sources of revenue.
Paladin Energy fell 4¢, or 7.8 per cent, to 47¢, as the uranium miner said it was cutting more jobs and reducing executive pay and other spending in response to continued falls in the price of uranium.