Stocks grow dizzy near the fiscal cliff

THE sharemarket closed nearly 1 per cent lower after steep falls on Wall Street.

By InvestSMART · 16 Nov 2012

By InvestSMART ·
16 Nov 2012

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THE sharemarket closed nearly 1 per cent lower after steep falls on Wall Street.

The benchmark S&P/ASX 200 Index was down 39.2 points, or 0.89 per cent, at 4349.2, while the broader All Ordinaries Index was down 40.1 points, or 0.91 per cent, at 4370.6.

The Dow Jones Industrial Average dropped 185.23 points (1.45 per cent) to 12,570.95 overnight on Wednesday, its lowest close since June 26.

RBS Morgans analyst Bill Chatterton said the heavy falls in the US had dragged the market lower.

"That's where the impact's coming from," Mr Chatterton said. "There's talk of fiscal cliffs and the European situation is taking a lot longer [to resolve] than the optimists were hoping. The GFC [global financial crisis] hangover doesn't just fix itself up in four or five years."

Investors would need to brace for several more years of volatility, he said.

Comments by US President Barack Obama about raising taxes on the wealthy, along with weak retail and manufacturing data in the US and in Europe, have been cited as triggers for "risk-off" falls.

The "fiscal cliff" refers to the huge tax rises and spending cuts that automatically come into force in the US on January 1 and could send the world's largest economy back into recession if Republicans and Democrats cannot reach a compromise.

BHP Billiton fell 61? to $33.12, Rio Tinto dropped $1.03 to $56.82 and Fortescue dropped 4? to $3.96.

The four big banks suffered losses. ANZ shed 15? to $24.05, Westpac lost 21? to $24.64 and Commonwealth Bank was 40? lower at $58.69. National Australia Bank was also down, though only by 1? to $23.23.

Qantas gained 5?, or 4.1 per cent, to $1.28 after it announced it would spend $100 million to buy back about 4 per cent of its issued stock and would repay $650 million of debt before its due date.

Seven Group shares closed 17? lower at $6.30.

Meanwhile, the dollar followed the sharemarket lower to finish the day down almost US1?.

Late on Thursday, the currency was trading at US103.58?, down from US104.52? on Wednesday.

OzForex head of corporate dealing Jim Vrondas said the currency moved lower amid weaker US sentiment and continued to fall on Thursday.

Global sentiment has turned sharply negative over the past fortnight, partly due to concerns about the fiscal cliff in the US.

Mr Vrondas said the key event for the currency would be the release of European gross domestic product data for the September quarter. He said the currency was likely to move a little lower.

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Frequently Asked Questions about this Article…

Why did the Australian sharemarket fall nearly 1% and what is the 'fiscal cliff' concern?

The S&P/ASX 200 fell about 0.89% (to 4,349.2) and the All Ordinaries dropped roughly 0.91% after steep falls on Wall Street. Analysts said the sell-off was driven by US market weakness, talk of the US 'fiscal cliff' (automatic tax rises and spending cuts due to take effect on January 1 that could tip the US into recession if not resolved), weak US retail and manufacturing data, comments about raising taxes on the wealthy, and ongoing European uncertainty.

How did large Australian miners perform during the sell-off (BHP Billiton, Rio Tinto, Fortescue)?

Big miners were down: BHP Billiton closed at $33.12, Rio Tinto closed at $56.82 and Fortescue finished at $3.96. The article links these falls to the broader risk-off sentiment following US and global economic worries.

What happened to major Australian bank shares (ANZ, Westpac, Commonwealth Bank, NAB) in this market move?

The big four banks all suffered losses in the session. ANZ closed at $24.05, Westpac at $24.64, Commonwealth Bank at $58.69 and National Australia Bank at $23.23. The falls reflect the wider market sell-off rather than company-specific news reported in the article.

Why did Qantas shares rise and what did the company announce?

Qantas shares gained after the airline announced a $100 million buyback to repurchase about 4% of its issued stock and said it would repay $650 million of debt before its due date. Those moves lifted investor sentiment and helped Qantas shares rise to $1.28 in the session covered.

Which other listed companies were mentioned as being affected and how did they move (for example, Seven Group)?

Seven Group was specifically mentioned as closing lower, finishing the day at $6.30 after a decline. The article notes several large-cap names were hit amid the market downturn driven by global risk-off sentiment.

How did the Australian dollar react to the global market weakness?

The Australian dollar moved lower alongside shares, trading around US103.58 cents late Thursday, down from US104.52 cents the previous day. Forex analysts in the article said the currency weakened amid weaker US sentiment and ongoing global concerns.

What should everyday investors expect after these market moves—will volatility continue?

According to RBS Morgans analyst Bill Chatterton quoted in the article, investors should brace for several more years of volatility as the fallout from the global financial crisis and lingering European problems take time to resolve. The article frames the recent falls as part of a broader, ongoing period of market uncertainty.

What near-term economic data or events should investors watch that could affect markets and the Australian dollar?

The article highlights that upcoming European gross domestic product (GDP) data for the September quarter is a key event likely to influence global sentiment and the Australian dollar's next moves. In general, investors were also watching US political negotiations over the fiscal cliff and incoming US economic data.