Market tumbles as euro zone debt fears return

THE stockmarket fell sharply yesterday, breaking a six-day winning streak, as investors took an interest rate cut from the central bank as a signal that the euro zone debt crisis will hurt the local economy.

By InvestSMART · 7 Dec 2011

By InvestSMART ·
7 Dec 2011

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At the close, the benchmark S&P/ASX200 index was down 64.1 points, or 1.5 per cent, at 4,257.2, while the All Ordinaries fell 63.3 points, or 1.5 per cent, to 4,316.2.

The Reserve Bank cut the cash rate by 25 basis points to 4.25 per cent, its second successive rate cut in as many months. Dealers said the move was a sign that the contagion from the euro zone debt crisis was having a growing effect on Australia's economic health.

"While the European situation is getting a lot of the attention, its impact on China could affect our economy in a big way," Cameron Stockbrokers Limited's Adrian Leppinus said. "The RBA's obviously seeing signs that things in Europe are coming to our shores."

The rate cut came after ratings agency Standard & Poor's said European heavyweights France and Germany along with 13 other euro zone nations were at risk of a credit downgrade if they failed to agree measures to tackle the debt crisis this week.

The news dampened market optimism after German Chancellor Angela Merkel and French President Nicolas Sarkozy said they were pushing for a rewrite of the European Union's governing rules to strengthen economic cooperation.

Industrial, resources and mining stocks all took a hit yesterday.

BHP Billiton fell 55?, or 1.48 per cent, to $36.71, while Rio Tinto lost $1.45, or 2.16 per cent.

Newcrest dropped 3.96 per cent, or $1.40, to $33.99 after Deutsche Bank downgraded the stock after a landslide halted mining at its Cadia goldmine in NSW.

Woodside fell 71? to $33.48, Santos was down 18? at $13.36 and Oil Search eased 7? to $6.48. Santos reported that its Devil Creek processing plant in Western Australia had produced first gas.

The big banks all lost ground, with ANZ down 6? at $20.99, CBA 26? at $49.70, Westpac 23? at $21.46 and NAB down 37? at $24.28.

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Frequently Asked Questions about this Article…

Why did the Australian stockmarket tumble and break its six-day winning streak?

The market fell after the Reserve Bank cut the cash rate and dealers interpreted the move as a sign that the euro zone debt crisis could hurt Australia’s economy. The S&P/ASX200 dropped 64.1 points (to 4,257.2) and the All Ordinaries fell 63.3 points (to 4,316.2) as investors reacted to rising contagion fears from Europe.

What did the Reserve Bank’s rate cut mean for investors and markets?

The RBA trimmed the cash rate by 25 basis points to 4.25%, its second successive monthly cut. Market participants said the cut signalled the RBA saw the euro zone debt crisis starting to affect Australia’s economic outlook, which dented investor confidence.

How did the euro zone debt crisis news affect market sentiment?

Concerns rose after Standard & Poor’s warned that France, Germany and 13 other euro-zone nations faced potential credit downgrades if they didn’t agree measures to tackle the crisis. Even comments from European leaders about rewriting EU rules to strengthen cooperation failed to restore optimism, increasing risk aversion among investors.

Which sectors were hit the hardest during the sell-off?

Industrial, resources and mining stocks were particularly weak, and major banks also lost ground. The article highlights broad selling across miners and the big four banks on the day of the fall.

What happened to major mining stocks such as BHP Billiton and Rio Tinto?

BHP Billiton fell about 1.48% to $36.71, while Rio Tinto lost $1.45, or about 2.16%. Both were among the resource stocks that took a significant hit amid the market pullback.

Why did Newcrest shares drop sharply, and what was the impact?

Newcrest fell 3.96% (down $1.40 to $33.99) after Deutsche Bank downgraded the stock. The downgrade followed a landslide that halted mining at Newcrest’s Cadia goldmine in New South Wales, weighing on the company’s outlook.

What company-specific news affected oil and gas stocks like Santos, Woodside and Oil Search?

Santos was trading around $13.36 and reported its Devil Creek processing plant in Western Australia had produced first gas. Woodside fell to about $33.48 and Oil Search eased to about $6.48, with the sector broadly pressured by the day’s risk-off sentiment.

How did Australia’s big banks perform and what does that mean for everyday investors?

The big banks all lost ground on the day: ANZ was around $20.99, CBA about $49.70, Westpac near $21.46 and NAB about $24.28. For everyday investors, the moves underline how global news (like the euro-zone crisis) and local policy responses (RBA rate cuts) can quickly affect bank and broader market share prices.