Stocks slide on rating agency warnings

According to the article, Australian shares fell after warnings from two ratings agencies about Europe’s debt crisis removed optimism that the problem was easing. The S&P/ASX 200 dropped 59.4 points (about 1.4%) to 4,193.4 as investors reacted to Moody’s and Fitch commentary on Europe’s outlook.

The article reports Moody’s said it would review credit ratings of all European nations after the Brussels summit failed to produce “decisive policy measures,” while Fitch warned Europe was unlikely to avoid a “significant economic downturn.” Those warnings matter because negative sovereign ratings and recession risks can increase market volatility and hit risk assets globally, including Australian shares.

Resource and energy stocks were hardest hit, with the energy sector ending the day down about 2.1%. Major miners and energy names mentioned in the article included BHP Billiton (down to $35.82), Rio Tinto (about $62.76), Woodside Petroleum ($31.53) and Santos ($13.01). Banks were also weaker, with NAB, Westpac, Commonwealth Bank and ANZ all lower on the session.

The article says resource stocks came under further pressure after the federal government downgraded its forecast for minerals and energy export earnings to $206 billion for 2011–12, down from $215 billion. A lower export earnings forecast suggests weaker demand or prices for commodities, which can weigh on mining and energy company share prices.

The article highlights the S&P/ASX 200 fall, below-average market turnover of 1.67 billion shares worth $4.15 billion, and a broad sell-off with about three shares falling for every one rising. These indicators — index weakness, low turnover and a wide disparity between decliners and advancers — point to risk-averse sentiment among investors that day.

Gold fell further in the Australian session, dropping US$38.87 to US$1,652.63 an ounce according to the article, adding to the previous day’s decline. For investors, a falling gold price can reflect reduced safe-haven demand and can influence portfolios that use gold as a hedge against market or currency risk.

The article notes dealers were looking to a slew of US and Chinese data for guidance, with particular attention on US monthly retail figures due for release. These data points can influence global risk sentiment and therefore affect Australian markets.

IG Markets strategist Stan Shamu told the article that investors were unimpressed by the European summit results, saying the onslaught on risk assets reflected that disappointment. He added it didn’t seem like the much‑hoped‑for “Santa Claus rally” would arrive anytime soon, signaling cautious expectations for a near-term market rebound.