Ratings downgrades in Europe hit local bourse

MOODY'S downgrades of several European credit ratings and softer commodity prices dragged the local sharemarket almost 1 per cent lower yesterday.

By InvestSMART · 15 Feb 2012

By InvestSMART ·
15 Feb 2012

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MOODY'S downgrades of several European credit ratings and softer commodity prices dragged the local sharemarket almost 1 per cent lower yesterday.

The benchmark S&P/ASX200 index closed down 42.3 points, or 0.99 per cent, at 4242.8, while the broader All Ordinaries fell 40.5 points, or 0.93 per cent, to 4318.9.

All sectors finished lower, as investors digested the impact of the US ratings agency's downgrades, which included cuts for Italy, Spain and Portugal. Moody's also placed negative outlooks on France, Britain and Austria and said Europe's weakening economic prospects threatened the implementation of austerity programs and structural reforms needed for greater competitiveness.

"Jitters from Moody's comments trickled through our market in the absence of any large, significant, industrials reporting," the chief analyst at City Index, Peter Esho, said.

Copper and gold prices fell and lower natural-gas prices dragged market heavyweight BHP Billiton down. "[The price of gas] continues to slump, so that's weighing on the price of BHP," Mr Esho said.

The mining giant closed 49?, or 1.34 per cent, lower at $36.17, while Rio Tinto fell $1.15, or 1.63 per cent, to $69.28.

Oil major Woodside fell 41? to $35.17, while gold major Newcrest Mining dropped 70?, or 2 per cent, to $34.40.

Banks and financials stocks were also softer leading in to the Commonwealth Bank's first-half result, out today.

Mr Esho said CBA's result would be solid, based on strong margins, good retail deposit growth and bad debts that are in line with expectations. The market expects CBA to post interim cash earnings of $3.53 billion, roughly flat on the previous second-half result.

CBA shares fell 33? to $49.96, while Westpac led the sector lower, closing down 25? at $20.90.

Among the bright spots were News Corporation, which added 19? to $18.84, and Woolworths, which gained 28? to $24.99. Coca-Cola Amatil also closed up, rising 13? to $11.73.

In corporate news, building-fixtures supplier GWA Group posted a 60 per cent drop in first-half profits. Mr Esho said its stock was the worst performer, closing down 17?, or 6.85 per cent, at $2.31.

Gaming firm Tabcorp fell 15?, or 5.17 per cent, to $2.75 after announcing it hoped to raise about $200 million from the issue of new subordinated notes to be listed on the Australian Securities Exchange.

The national turnover was 1.9 billion securities worth $4.5 billion. The March share price index futures contract was 39 points lower at 4206.

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Frequently Asked Questions about this Article…

How did Moody's downgrades in Europe affect the Australian sharemarket (ASX) today?

Moody's cuts to several European sovereign ratings and negative outlooks for other countries spooked investors and dragged the local market lower. The S&P/ASX 200 fell 42.3 points (0.99%) to 4242.8 and the All Ordinaries dropped 40.5 points (0.93%) to 4318.9, with all sectors finishing down as traders digested the news.

Why did mining stocks like BHP Billiton and Rio Tinto fall after the news?

Commodity moves hit mining stocks: copper and gold prices fell and natural gas weakened, which weighed on big miners. BHP Billiton closed lower at $36.17 (about 1.3% down) and Rio Tinto fell $1.15 to $69.28 (around 1.6% down) as investors reacted to softer commodity prices.

What happened to oil and gold majors such as Woodside and Newcrest Mining?

Oil and gold names also lagged as commodity prices softened. Woodside closed lower at $35.17, while Newcrest Mining dropped about 2% to $34.40, reflecting the weaker gold and energy price environment on that trading day.

How did bank stocks react ahead of the Commonwealth Bank's (CBA) half-year result?

Banks were softer into CBA's first-half result. The market expected CBA to post interim cash earnings of about $3.53 billion, roughly flat on the prior period, and analysts were looking for solid margins, retail deposit growth and bad debts in line with expectations. CBA shares fell to $49.96 and Westpac closed lower at $20.90.

Which stocks were the day’s bright spots on the ASX?

A few names bucked the downward trend: News Corporation rose to $18.84, Woolworths gained to $24.99 and Coca‑Cola Amatil closed up at $11.73, providing some upside amid a broadly weaker market.

What corporate news drove big moves in individual stocks like GWA Group and Tabcorp?

GWA Group reported a 60% drop in first‑half profits, making it the worst performer and sending the share price down to $2.31. Gaming firm Tabcorp fell after announcing it hoped to raise about $200 million by issuing new subordinated notes to be listed on the ASX; Tabcorp closed at $2.75.

What were the overall market activity and futures signals on the day?

National turnover was 1.9 billion securities worth about $4.5 billion. The March share price index futures contract signalled more weakness, finishing 39 points lower at 4206.

What should everyday investors take away from market moves driven by overseas ratings and commodity swings?

The article shows that overseas credit‑rating actions and commodity price swings can cause broad sector sell‑offs domestically, even when few major company reports are released. For everyday investors, it highlights the importance of watching global macro headlines, commodity trends and upcoming company results (like CBA's), since these factors can quickly influence ASX prices and investor sentiment.