Market unsettled over US stimulus

Despite a relief rally on Friday, local shares fell over the past week as speculation mounted that the US Federal Reserve might start to cut stimulus next week. On Friday the benchmark S&P/ASX 200 Index rallied 35.9 points, or 0.7 per cent, to 5098.4, while the broader All Ordinaries Index gained 32.3 points, or 0.6 per cent, to 5101.5, as investors decided that after a six-day losing streak, the longest since July 2012, blue-chip shares had been oversold.

Despite a relief rally on Friday, local shares fell over the past week as speculation mounted that the US Federal Reserve might start to cut stimulus next week.

On Friday the benchmark S&P/ASX 200 Index rallied 35.9 points, or 0.7 per cent, to 5098.4, while the broader All Ordinaries Index gained 32.3 points, or 0.6 per cent, to 5101.5, as investors decided that after a six-day losing streak, the longest since July 2012, blue-chip shares had been oversold.

Over the week the ASX 200 lost 1.7 per cent to chalk up its fourth straight week of losses.

‘‘Friday’s price action was a relief rally and a result of the market having been oversold over the last week,’’ Citi’s head of sales trading, Daniel Young, said. ‘‘Next week bank dividends will be paid, so hopefully we will see that money put to work.’’

Crown Resorts dropped 4.3 per cent on Friday, following the news that the Victorian government will extract more tax from the casino operator. Crown ended the week down 3.4 per cent at $15.90.

Macquarie Group’s head of investments private portfolio management, Paul Trainor, believes the effects of tapering are now mostly priced into the market.

‘‘More positively, the start of tapering means the US economy is clearly improving and moving into a self-sustaining recovery period,’’ he said.

Reserve Bank governor Glenn Stevens has been vocal about his hopes that a strengthening US economy will lead to a lower exchange rate, which will help Australian equities, and take pressure off the central bank to cut interest rates again or intervene in the currency market. At Friday’s local close the dollar was buying US89.28¢, down from US90.56¢ at the previous week’s close.

‘‘The macroeconomic backdrop looks more conducive offshore, particularly in the US, where employment conditions are improving and the outlook for manufacturing has lifted,’’ Mr Trainor said. ‘‘Plus, a weaker Australian dollar relative to the US dollar and also likely the euro, is expected to lift translated earnings in 2014.’’

Financial services was the worst-performing sector for the week. It was down 2.3 per cent, as the big four banks declined and the nation’s largest insurer, QBE, got battered after emerging from a trading halt on Monday. This was to issue its 10th consecutive profit warning, flagging an expected $250 million net loss for the year.

QBE was the worst-performing stock of the week, falling 34 per cent to $10.60.

Commonwealth Bank lost 1.3 per cent to $74.20, while ANZ fell 2.4 per cent at $30.25, and National Australia Bank shed 0.3 per cent to $33.35.

On Friday, Westpac chairman Lindsay Maxsted forecast an increase in demand for loans over the next year. Over the week, Westpac dropped 1.6 per cent to $31.

Domestic economic indicators over the week were mixed.

The government’s rebuff of Holden has been interpreted as a sign it may be difficult for Qantas to secure government support. The embattled airline fell 2.8 per cent over the week to $1.

BHP Billiton dropped 2.5 per cent to $35.85 despite plans to cut costs in its iron ore division.

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