Rate cut can't halt market's drift downwards

THE local market fell 1.5 per cent yesterday, as mining stocks lost ground after weaker Chinese manufacturing data.

By InvestSMART · 2 Nov 2011

By InvestSMART ·
2 Nov 2011

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THE local market fell 1.5 per cent yesterday, as mining stocks lost ground after weaker Chinese manufacturing data.

There was a rally after the Reserve Bank announced an interest rate cut, but it was not sustained and the market resumed its gradual drift lower.

The benchmark S&P/ASX200 index closed down 65.2 points at 4232.9, while the All Ordinaries fell 63.3 points to 4297.2.

The bourse opened about 1 per cent lower as investors absorbed the latest developments on the European debt crisis and reacted to a poor night on Wall Street. A disappointing set of Chinese manufacturing data also had investors looking to sell.

"Volumes are light because of the Melbourne Cup and the market is being weighed down by renewed concern over Europe," the IG Markets strategist Stan Shamu said.

The biggest declines came in the metals and minerals sector, which fell 2.48 per cent, while materials slid 2.4 per cent, as commodities prices were broadly weaker in overseas trading.

BHP Billiton ended down $1.03, at $36.77, while Rio Tinto closed down $2.06, to $67.15.

BHP approved the $US4.2 billion Caval Ridge Mine coal project in the northern Bowen Basin in central Queensland, in a joint venture with Mitsubishi Development.

The worst performer among leading stocks was QBE Insurance, which slid 51?, to $14.24. Rival insurer IAG fell 2? to $3.13, while Suncorp was down 11? at $8.48.

Two of the four big retail banks - Westpac and CBA - moved quickly to match the Reserve's decision to take 25 basis points off the cash rate.

The banks ended in the red - ANZ fell 32? to $21.36, CBA fell 57? to $48.70, NAB fell 60? at $25.10 and Westpac fell 38? to $21.94.

Qantas closed up 1.75? at $1.63 as normal operations resumed after the airline's decision to ground its fleet at the weekend. Rival Virgin Australia slipped 0.5? at 37?.

The spot price of gold was $US1718.53 per ounce, up $US7.23.

National turnover was 1.31 billion securities worth $3.19 billion. The December share price index futures contract fell 53 points at 4231.

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Frequently Asked Questions about this Article…

Why did the ASX200 and local market fall yesterday?

The local market fell about 1.5% as investors reacted to weaker Chinese manufacturing data, renewed concern over the European debt crisis and a poor session on Wall Street. Although there was a short-lived rally after the Reserve Bank announced a rate cut, selling resumed and the S&P/ASX200 finished down 65.2 points at 4,232.9 (All Ordinaries down 63.3 points to 4,297.2).

How did the Reserve Bank interest rate cut affect share prices and banks?

The Reserve Bank cut the cash rate by 25 basis points, which triggered a temporary market rally. Two of the four big retail banks (Westpac and CBA) moved quickly to match the cut. Despite that, major banks ended the day lower: ANZ closed at $21.36, CBA at $48.70, NAB at $25.10 and Westpac at $21.94.

Why did mining and materials stocks, including BHP and Rio Tinto, lose ground?

Metals & minerals and materials sectors were hit by broadly weaker commodity prices in overseas trading and disappointing Chinese manufacturing data. The sector declines weighed on major miners: BHP Billiton closed down $1.03 at $36.77 and Rio Tinto closed down $2.06 at $67.15.

What is BHP’s Caval Ridge coal project and who is partnering on it?

BHP approved the US$4.2 billion Caval Ridge Mine coal project in the northern Bowen Basin in central Queensland. The project is a joint venture with Mitsubishi Development, according to the article.

What happened to insurance stocks like QBE, IAG and Suncorp during the sell-off?

Insurance stocks were among the weaker performers. QBE was the worst performer among leading stocks, closing at $14.24; IAG and Suncorp also fell, with IAG closing at $3.13 and Suncorp at $8.48. The article links these moves to the broader market weakness but does not give a specific company-level cause.

How did airline shares trade after Qantas grounded its fleet over the weekend?

Qantas shares rose as normal operations resumed, closing up 1.75% at $1.63. Rival Virgin Australia slipped slightly (around 0.5%) on the day.

Were trading volumes normal, and what was the market turnover and futures movement?

Volumes were light—partly attributed to the Melbourne Cup—with national turnover of 1.31 billion securities worth $3.19 billion. The December share price index futures contract fell 53 points to 4,231.

What happened to gold and commodity prices during the session?

Gold gained slightly: the spot price was US$1,718.53 per ounce, up US$7.23. Overall commodity prices were broadly weaker in overseas trading, contributing to the weakness in mining and materials stocks.