Profit-takers trim market gains

THE sharemarket closed lower yesterday after a weak Chinese manufacturing report dampened demand for commodities-linked companies, and softness among banking stocks.

By InvestSMART · 2 Jul 2011

By InvestSMART ·
2 Jul 2011

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THE sharemarket closed lower yesterday after a weak Chinese manufacturing report dampened demand for commodities-linked companies, and softness among banking stocks.

The benchmark S&P/ASX200 index fell 16.8 points to 4,591.2, while the broader All Ordinaries was down 11.9 points to 4,647.9. Despite yesterday's declines, the market closed the week up more than 1.8 per cent.

An IG Markets strategist, Ben Potter, said investors took the opportunity to take profits after a three-day rally before the long weekend in the United States.

"We're just seeing a bit of classic Friday afternoon profit-taking," he said. "It's been a pretty good week for the market."

"The Greek things went the right way [the vote for austerity measures to avoid debt default] and it was almost a perfect week in terms of what you hope [would] happen."

Investors reacted adversely to data showing Chinese manufacturing activity fell to its lowest since February 2009.

HSBC Economics said the slowdown implies that policy tightening is working, and points to a peaking of Chinese inflation soon.

Market leader BHP Billiton fell 3? to $43.77, Rio Tinto fell 16? to $82.83, and oil and gas producer Woodside Petroleum was 10? weaker at $40.90.

The big retail banks were down after UBS cut earnings forecasts. ANZ dipped 5? to $21.95, the Commonwealth was off 38? at $51.92, NAB fell 14? to $25.48 and Westpac 23? to $22.03.

Shares in rare earths supplier Lynas Corp fell sharply as the company denied reports that a planned Malaysian plant could be delayed by one to two years. Lynas fell 23?, or 11.6 per cent, to $1.75 and was the worst performer among the top 100 stocks.

Preliminary national turnover was 1.96 billion shares worth $4.21 billion.

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Frequently Asked Questions about this Article…

Why did the ASX (S&P/ASX200) close lower on the day covered in the article?

The market slipped after weak Chinese manufacturing data dented demand for commodity-linked companies and investors engaged in profit‑taking following a three‑day rally. The S&P/ASX200 fell 16.8 points to 4,591.2 and the All Ordinaries closed at 4,647.9, although the market still finished the week up more than 1.8%.

How did Chinese manufacturing data impact Australian commodity stocks?

Investors reacted to a report showing Chinese manufacturing activity fell to its weakest since February 2009, weighing on commodity-linked shares. HSBC said the slowdown suggests policy tightening is working and points to a peaking of Chinese inflation, which contributed to weaker prices for major miners and energy names.

Which major miners and energy companies were hit and how did their share prices move?

Market leader BHP Billiton fell to $43.77, Rio Tinto closed at $82.83 and oil and gas producer Woodside Petroleum was weaker at $40.90 on the trading day covered by the article.

What caused the pullback in big bank shares on the ASX?

The big retail banks slipped after UBS cut earnings forecasts, prompting investor caution. On the day, ANZ traded at $21.95, Commonwealth Bank at $51.92, NAB at $25.48 and Westpac at $22.03.

Why did rare‑earths supplier Lynas Corp’s shares fall sharply?

Lynas shares tumbled after the company denied reports that a planned Malaysian plant could be delayed. The stock fell 11.6% to $1.75 and was the worst performer among the top 100 stocks that day.

How much trading activity was recorded that day on the Australian market?

Preliminary national turnover was 1.96 billion shares worth $4.21 billion, reflecting the day’s trading volume and investor activity.

Was profit‑taking the main reason for the market dip, and what did market commentators say?

Yes — IG Markets strategist Ben Potter described the moves as classic Friday afternoon profit‑taking after a strong three‑day rally ahead of a long US weekend. He said it followed an otherwise ‘pretty good week’ for the market.

Despite the daily fall, how did the market perform over the full week?

Even with the single‑day decline, the market closed the week up more than 1.8%. Commentators also noted positive developments such as a Greek vote in favour of austerity measures, which helped sentiment during the week.