Materials and energy pull down index

THE sharemarket fell half of 1 per cent yesterday, weighed down by mining and energy stocks, as the wave of confidence from monetary easing among central banks waned.

By InvestSMART · 25 Sep 2012

By InvestSMART ·
25 Sep 2012

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THE sharemarket fell half of 1 per cent yesterday, weighed down by mining and energy stocks, as the wave of confidence from monetary easing among central banks waned.

The benchmark S&P/ASX 200 Index dropped 22.8 points, or 0.5 per cent, to 4385.5.

Among the sectors, materials led the decline, falling 1.3 per cent, while energy lost 1 per cent. Health bucked the trend, adding 0.7 per cent.

CommSec analyst Steven Daghlian said losses were not unexpected after Wall Street finished down on Friday.

"The fact that both [materials and energy] . . . fell was more than enough to pull the rest of the market into the red," he said, noting that these two sectors combined make up about 30 per cent of the market.

BHP fell 0.9 per cent to $33.41, rival Rio Tinto lost 2.4 per cent, to finish at $54.97, and Fortescue dropped 0.3 per cent to $3.60.

With the Australian economy so heavily tilted towards Chinese growth, manufacturing data from the world's second-largest economy, due out on Friday, will be one of the key factors for the week.

"We've seen a little bit of a negative trend in China recently, or at least contraction in the manufacturing space, so if we continue to see that, markets aren't going to react in a positive light," said Mr Daghlian.

Goldminer Newcrest, which was trading ex-dividend, fell 2.6 per cent to $28.14 as gold prices pulled back from near seven-month highs. The company also announced last week that its operation in Papua New Guinea is operating at reduced capacity due to an electrical issue.

The spot gold price was down about 0.7 per cent to $US1760.09 an ounce.

Among the big banks, ANZ dropped 0.6 per cent to $24.70, CBA lost 0.1 per cent to $55.08 and Westpac fell 0.2 per cent to $24.58, while NAB broke the trend, adding 0.4 per cent to finish at $25.50.

Speculation that Spain will unveil a bailout program later this week gave investors something to cheer, but with French President Francois Hollande and German Chancellor Angela Merkel unlikely to agree on a banking union that would give the European Central Bank power to supervise all eurozone banks, the confidence soon diminished.

The two leaders must agree on a plan by October 10, or abandon it completely.

"Germany is obviously in no rush to do that because the current situation in Europe will ultimately have them being the guarantor for most of these debts. They're in no hurry to do that without a proper plan in place," said IG Markets analyst Stan Shamu.

He expected the Australia market to finish higher for the quarter, but believed results could be better.

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Frequently Asked Questions about this Article…

Why did the ASX 200 fall yesterday and by how much?

The S&P/ASX 200 dropped 22.8 points, or about 0.5%, to finish at 4,385.5. The fall was driven by waning confidence from expected monetary easing, a weaker Wall Street lead and falls in heavy-weight sectors—especially materials and energy—which pulled the market into the red.

How did the materials and energy sectors impact the overall market?

Materials led the decline, falling about 1.3%, while energy lost roughly 1.0%. Because materials and energy together make up about 30% of the market, their weakness was enough to drag the broader index down.

What happened to major miners like BHP, Rio Tinto and Fortescue?

BHP fell 0.9% to $33.41, Rio Tinto lost 2.4% to finish at $54.97, and Fortescue dropped about 0.3% to $3.60, reflecting the broader weakness in the materials sector.

Why did Newcrest shares fall and what is happening to the gold price?

Newcrest, trading ex-dividend, fell 2.6% to $28.14 as gold prices pulled back from near seven-month highs. The spot gold price was down about 0.7% to US$1,760.09 an ounce. Newcrest also reported reduced capacity at its Papua New Guinea operation due to an electrical issue.

How did the big Australian banks perform on the day?

Performance was mixed: ANZ dropped 0.6% to $24.70, Commonwealth Bank (CBA) lost 0.1% to $55.08, Westpac fell 0.2% to $24.58, while NAB bucked the trend and added 0.4% to finish at $25.50.

What international events should investors watch that could affect Australian stocks?

Investors should watch upcoming Chinese manufacturing data (important because the Australian economy is closely tied to Chinese growth) and European developments—speculation around a Spanish bailout and ongoing debate over a eurozone banking union involving leaders such as France’s Hollande and Germany’s Merkel could influence global sentiment.

What did market analysts say about the recent sell-off?

CommSec analyst Steven Daghlian said the losses weren’t unexpected after Wall Street’s weakness and noted that falls in materials and energy were sufficient to push the market lower. IG Markets’ Stan Shamu commented that Germany is in no rush to take on broad eurozone guarantees and expected markets to finish higher for the quarter, though results could be better.

What should everyday investors focus on after this market move?

Based on the article’s coverage, everyday investors may want to monitor sector leadership (materials and energy), upcoming Chinese manufacturing data, movements in gold prices and miner operations, and major European developments that affect market confidence—since these factors were highlighted as drivers of the recent market move.