Shares slip as optimism over Europe fades

AUSTRALIAN shares slipped 0.8 per cent amid low volumes on resurfacing fears of Europe's debt crisis and ahead of the start of the US earnings season.

By InvestSMART · 7 Jan 2012

By InvestSMART ·
7 Jan 2012

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AUSTRALIAN shares slipped 0.8 per cent amid low volumes on resurfacing fears of Europe's debt crisis and ahead of the start of the US earnings season.

The market still managed to gain more than 1 per cent for the week, snapping a four-week losing streak, after stronger economic data from the US and Europe encouraged investors earlier in the week.

The earlier optimism wore off on the realisation that the debt problems of Europe were likely to persist. European bourses closed lower and the euro tumbled on Thursday night after a rise in borrowing costs at France's latest government debt auction sparked concerns over the health of the region's second-largest economy.

"There are the usual concerns about the European banking and debt situation," the EL & C Baillieu Stockbroking director, Richard Morrow, said. "The reflection of all that is equities are pretty soft."

At the close yesterday, the benchmark S&P/ASX 200 index was down 34.2 points, or 0.8 per cent, at 4108.5, while the broader All Ordinaries index was down 32.1 points, also 0.8 per cent, at 4164.5. The All Ords added 1.3 per cent for the week.

Trading volumes continued to be low, with 1.13 billion shares worth $3.03 billion changing hands. Almost three shares fell for each one that gained.

Materials stocks pushed lower after a sell-off in commodities overnight. BHP Billiton shed 1.6 per cent to $35.24 while Rio Tinto lost 0.5 per cent to $62.52.

Goldminers were among the stocks which bucked the trend. Newcrest added 25?, or 0.8 per cent, to $30.75. The spot price of gold was at $US1623.30, up $US4.05 from Thursday's local close.

Suncorp led financial stocks lower after the general insurer said it expected natural hazard costs for the six months to December to be in the rage of $360 million to $420 million. The stock lost 28?, or 3.2 per cent, to $8.42. The other general insurers also fell, with IAG losing 2.3 per cent to $2.93 and QBE slipping 0.2 per cent to $13.12.

The major banks declined, with ANZ leading the fall with a 1.4 per cent drop to $20.45.

Among the top 200, Pacific Brands was the biggest gainer, adding 2.8 per cent to 56?. Goodman Fielder was the biggest loser, falling 3?, or 7.1 per cent, to 39.5?.

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Frequently Asked Questions about this Article…

Why did Australian shares slip 0.8% and what drove the S&P/ASX 200 lower?

The market fell about 0.8% largely on low trading volumes and resurfacing fears about Europe’s debt crisis. The S&P/ASX 200 lost 34.2 points to 4,108.5 as investors reacted to rising borrowing costs in Europe and prepared for the start of the US earnings season.

How did concerns about Europe’s debt situation affect Australian markets and the euro?

Rising borrowing costs at a French government debt auction heightened fears about the health of Europe’s economy, which pushed European bourses lower and sent the euro tumbling. That negative sentiment flowed into Australian equities, contributing to softer share prices locally.

Which sectors were hit hardest by the sell-off and why should investors notice material stocks?

Materials stocks were pushed lower after an overnight commodity sell-off. Large miners were down—BHP Billiton fell about 1.6% to $35.24 and Rio Tinto lost about 0.5% to $62.52—so investors watching commodity exposure on the ASX should note how global commodity moves and sentiment can weigh on these names.

Did any sectors or stocks outperform despite the broader market weakness?

Yes—gold miners bucked the trend. Newcrest rose about 0.8% to $30.75, supported by a firmer gold spot price (reported at US$1,623.30, up US$4.05 from the prior local close).

Why did insurance stocks fall and which insurers were specifically mentioned?

Suncorp led financials lower after warning that natural hazard costs for the six months to December were expected to be in the range of $360 million to $420 million; Suncorp fell about 3.2% to $8.42. Other general insurers mentioned were IAG, down about 2.3% to $2.93, and QBE, slipping about 0.2% to $13.12.

How did the major banks perform on the day and which bank led the decline?

Major banks declined on the day, with ANZ leading the fall—down about 1.4% to $20.45—reflecting the broader risk-off mood across financial stocks.

What was the trading volume and market breadth like during the sell-off?

Trading volumes were low: about 1.13 billion shares worth $3.03 billion changed hands. Market breadth was weak, with almost three shares falling for each one that gained.

How did the market perform over the week despite the daily drop and which individual ASX 200 stocks had notable moves?

Despite the daily slip, the market managed to gain more than 1% for the week, snapping a four-week losing streak after stronger US and European economic data earlier in the week. Among ASX 200 stocks, Pacific Brands was the biggest gainer (up about 2.8%) while Goodman Fielder was the biggest loser (down about 7.1%).