MARKETS SPECTATOR: ASX shakes

The S&P/ASX200 Index is on course for its third consecutive fall after falling to an intraday low of 4664.70 at 1215 AEST. All sectors – bar the health care and technology sub indexes – fell.

At 1308 AEST the index was down 64.60, or 1.4 per cent, to 4674.20, bringing its losses since June 20 to 3.8 per cent. The S&P/ASX200 Index has fallen 10 per cent since its 52-week high of 5220.987 on May 14.

Shares in AMP plummeted as much as 11 per cent after the Australia’s biggest insurer said it expects its underlying profit for the six months to June 30 is $425 million, a 13 per cent decrease compared with the $491 million in actual profit for the six months to June 30, 2012.

AMP’s stock at 1311 AEST was down 51 cents, or 10 per cent, to $4.47.

The company blamed unforeseen losses – $32 million – in its insurance unit for the lower profit forecast. The company said more of its policyholders than forecast have claimed, in the first five months of this year, income protection. This points to a weak domestic economy that cannot support job and income growth.

Bank stocks, which account for about a third of the index’s market value, also fell.  

Morgan Stanley bank analyst Richard Wiles said in a research note released today that there are "downside risks to business loan growth” while competition for business banking is increasing.

ANZ shares fell 2 cents, or 0.1 per cent, to $27.39. Commonwealth Bank’s stock dropped 7 cents, or 0.1 per cent, to $65.99. National Australia Bank shares slid 22 cents, or 0.8 per cent, to $28.76. Westpac shares declined 9 cents, or 0.3 per cent, to $27.63.

“Softer business conditions suggest downside risk to loan growth at a time when price competition is rising,” said Wiles. “Credit quality hasn’t deteriorated but we think it will if conditions don’t improve.”

Still, shares in grocery wholesaler Metcash surged as much as 8.4 per cent. The stock, the owner of Mitre 10 stores increased, after the company said today net profit in the 12 months to April more than doubled to $206 million as liquor, hardware and automotive revenue increased.

Metcash shares at 1314 AEST had risen 24.5 cents, or 7.1 per cent, to $3.685.

Elsewhere, Rio Tinto shares have dropped $1.09, or 2.1 per cent, to $54.57 after falling as low as $51.50 after the company decided it would retain its diamond business it had previously said it was trying to sell.

Some trading desks say investors are increasingly nervous as to what effect rising US interest rates will have on stock prices. Rising rates make investments such as term deposits more attractive while making shares less attractive, particularly if rates rise to the extent that they affect consumer and business borrowing. Some perceive Australian rates may be under upward pressure because of rising US bond yields.

Increasingly likely is that the Reserve Bank’s benchmark cash rate, currently 2.75 per cent, may not fall further. The Australian dollar's slide to a 52-week low today – US91.91 cents – may put off the central bank from cutting rates further. The central bank may decide the dollar’s 13 per cent drop since April 11 is enough of a boost to the non-mining sector which has long complained about the currency trading above parity to the US dollar, which it was as recently as last month.