Markets tremble as Europe deliberates

INVESTORS had their eyes trained on Europe all week, with hopes its leaders would come up with a "fiscal compact" to restore confidence in the region.

By InvestSMART · 10 Dec 2011

By InvestSMART ·
10 Dec 2011

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INVESTORS had their eyes trained on Europe all week, with hopes its leaders would come up with a "fiscal compact" to restore confidence in the region.

Officials from the European Commission held a bizarre press conference yesterday morning in Brussels, saying they would reassess the adequacy of the euro zone's bailout fund in three months.

"It was really weird. Why hold a press conference in the early hours of the morning? They didn't seem to have anything too appealing to announce," the senior currency strategist at Westpac, Sean Callow, said. "The markets weren't very thrilled about it."

The local market lost ground yesterday, finishing the week well in the red. The benchmark S&P/ASX 200 Index shed 77.7 points, or 1.82 per cent, to 4203. It was down 2.73 per cent over the week.

Financial and energy stocks led the way down, but all sectors lost ground. BHP Billiton fell $1.13, or 3.1 per cent, to finish at $35.86, while rival Rio Tinto lost $2.35, or 3.6 per cent, to $63.74. Woodside Petroleum fell $1.01 to $31.89, after oil prices dipped overnight.

Wealth manager AMP initially gained ground after reports that Japan's Mitsubishi UFJ Financial had paid $425 million for 15 per cent of AMP Capital Investors.

AMP said the sale would give it a foothold in Japan and its share price shot up 30? to $4.52, before falling back to close 2? lower on the day at $4.30. The Australian dollar lost US1? over the week to finish on $US1.01.

Richard Grace, the chief currency strategist at Commonwealth Bank, said the currency had held up well despite Europe's debt woes.

"Commodity prices aren't collapsing, hence the Australian dollar's not," he said. "The only reason you'd get really bearish on the Australian dollar is if you thought that global economic activity would collapse, but it shouldn't unless Asia starts to slow significantly."

The big four banks lost ground after Reserve Bank governor Glenn Stevens warned that reforms of the global financial system could be taken too far.

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Frequently Asked Questions about this Article…

Why did markets tremble this week and what was the role of Europe in the volatility?

Markets were rattled as investors focused on Europe and hopes for a fiscal compact to restore confidence. European Commission officials held a surprise press conference in Brussels and said they would reassess the euro zone bailout fund in three months, which left markets uneasy and contributed to global risk-off sentiment.

How did the ASX 200 perform amid the market moves?

The benchmark S&P/ASX 200 fell 77.7 points, or 1.82%, to finish at 4,203 and was down about 2.73% for the week, reflecting broad declines across sectors.

Which sectors and major Australian stocks led the declines on the ASX?

Financial and energy stocks led the sell-off. Major resource and energy names moved lower — BHP Billiton fell $1.13 (around 3.1%) to $35.86, Rio Tinto lost $2.35 (about 3.6%) to $63.74, and Woodside Petroleum dropped $1.01 to $31.89 after oil prices dipped.

What was the AMP and Mitsubishi UFJ report, and how did AMP shares react?

Reports said Japan's Mitsubishi UFJ Financial paid $425 million for a 15% stake in AMP Capital Investors. AMP shares initially surged to about $4.52 on the news before pulling back to close lower at around $4.30 by the end of the day.

How did the Australian dollar perform during the turmoil and why did it hold up?

The Australian dollar weakened over the week to finish near US$1.01. Commonwealth Bank strategist Richard Grace noted the AUD held up reasonably well because commodity prices weren't collapsing — suggesting the currency's resilience is tied to commodity demand, particularly from Asia.

Why did the big four banks lose ground in this market environment?

The big four banks slipped after Reserve Bank governor Glenn Stevens warned that reforms of the global financial system could be taken too far — comments that likely increased investor uncertainty about the banking sector's outlook.

Did oil price movements affect energy stocks, and which company was mentioned?

Yes. Overnight dips in oil prices weighed on energy stocks; Woodside Petroleum was specifically mentioned as falling $1.01 to $31.89 following the decline in oil.

What are the main takeaways for everyday investors from this market update?

Based on the article: geopolitical and policy developments in Europe can quickly drive market volatility; financials and energy were among the hardest hit this week; company-specific news (like AMP's reported deal with Mitsubishi UFJ) can cause sharp intraday moves; and currency and commodity trends — such as the AUD near US$1.01 and steady commodity prices — can influence market resilience. Everyday investors should watch macro headlines, sector exposures, and company announcements to understand near-term market swings.