Market rattled by carbon tax, debt woes

STOCKS sank to their lowest point this month after a sharp selloff on renewed concerns over the carbon tax and international debt woes.

By InvestSMART · 13 Jul 2011

By InvestSMART ·
13 Jul 2011

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STOCKS sank to their lowest point this month after a sharp selloff on renewed concerns over the carbon tax and international debt woes.

The S&P/ASX 200 Index closed down 86.9 points, or 1.9 per cent, at 4495.4.

Almost $25 billion was wiped from the Australian sharemarket in the worst trading day this month, based on the drop in the All Ordinaries Index to its weakest finish since June 29.

Austock Securities senior client adviser Michael Heffernan said international debt concerns coupled with the fallout from the carbon tax sent the market into the red. "We're seeing a perfect storm of negative influences hitting the market," he said.

"Take the European and American market pressures combined with our carbon tax and wrap it all up together and you've got a down day."

Mr Heffernan said Australian stocks slid further into negative territory throughout the day with airlines, energy and steel companies among the worst performers.

"Virgin Blue is getting belted because the airlines are getting no respite from the carbon tax, so both Virgin and Qantas have been right in the gun," Mr Heffernan said.

Virgin stocks dropped 3? to 31?, while Qantas lost 4.9 per cent, or 9.5?, to $1.84.

Mr Heffernan said coal stocks bucked the trend on the back of increased confidence from the $4.7 billion takeover bid for Macarthur Coal by US mining giant Peabody Energy and the world's largest steel maker ArcelorMittal.

Macarthur Coal jumped $4.06, or 36.6 per cent, to $15.14, Gloucester Coal added 33? to $8.76, New Hope rose 8? to $5.23 and Whitehaven Coal was up 17? at $6.27.

"It's quite ironic as coal stocks were expected to be hit hard by the carbon tax, yet they're the better performers than their other resource counterparts," Mr Heffernan said.

BlueScope Steel shed 4? to $1.22 and Fortescue Metals dropped 21? to $6.28.

BHP Billiton lost 84?, or 1.9 per cent, to $43.46 and Rio Tinto fell $1.77, or 2.1 per cent, to $81.43.

Among the banks, Macquarie Group was down $1.81, or 6 per cent, at $28.22, its weakest close since March 2009. National Australia Bank dropped 92?, or 3.7 per cent, to $23.88, ANZ lost 48? to $21.08, Commonwealth Bank shed 91? to $49.64 and Westpac lost 45? to $21.14.

The price of gold in Sydney closed at $US1550.43 an ounce, up $US4.32 from Monday's close at $US1546.11. Preliminary national turnover reached 2.89 billion shares worth $5.98 billion, with 236 shares up, 867 down and 306 unchanged.

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Frequently Asked Questions about this Article…

What triggered the sharp selloff in the Australian sharemarket — was it the carbon tax or international debt concerns?

The article says the selloff was driven by a combination of renewed concerns about the carbon tax and international debt woes. Austock Securities adviser Michael Heffernan described it as a "perfect storm" of negative influences, with pressure from European and US markets layered on top of the domestic carbon tax, pushing the S&P/ASX 200 down 86.9 points (1.9%) to 4,495.4.

How did the carbon tax affect airline stocks like Virgin and Qantas?

Airlines were among the worst performers during the selloff. The article reports Virgin’s shares were hit hard and Qantas fell sharply — Qantas lost 4.9% to close at $1.84 — with Michael Heffernan noting airlines are getting "no respite" from the carbon tax.

Why did coal stocks rally even though the carbon tax should hurt them?

Coal stocks bucked the broader market weakness because takeover activity boosted investor confidence. A $4.7 billion takeover bid for Macarthur Coal by US miner Peabody Energy and steelmaker ArcelorMittal lifted coal names: Macarthur Coal jumped 36.6% to $15.14, Gloucester Coal added 33% to $8.76, New Hope rose 8% to $5.23 and Whitehaven Coal was up 17% at $6.27.

What happened to major miners and steel companies during the selloff?

Several large miners and steelmakers fell on the day. BlueScope Steel shed about 4% to $1.22, Fortescue Metals dropped around 21% to $6.28, BHP Billiton fell 1.9% to $43.46 and Rio Tinto declined 2.1% to $81.43.

How were the big banks affected during this market downturn?

Bank stocks were hit across the board. Macquarie Group fell 6% to $28.22 — its weakest close since March 2009 — National Australia Bank dropped 3.7% to $23.88, while ANZ, Commonwealth Bank and Westpac also recorded declines, closing at $21.08, $49.64 and $21.14 respectively.

What were the market breadth and turnover figures on the worst trading day this month?

Preliminary national turnover reached 2.89 billion shares worth $5.98 billion. Market breadth was negative: 236 shares were up, 867 down and 306 unchanged.

How did gold prices respond during the market turmoil?

Gold rose slightly amid the volatility. In Sydney the price of gold closed at US$1,550.43 an ounce, up US$4.32 from Monday’s close of US$1,546.11.

Which sectors were the worst hit and what was driving day-to-day volatility for investors?

The article highlights airlines, energy and steel companies as among the worst performers on the day. The volatility was driven by the combined effect of international debt concerns, weaker overseas markets and the domestic carbon tax, creating heightened downside pressure for investors.