'Tipping point' triggers downhill racers
And bond traders set off global currency markets as they voiced their displeasure of the state of monetary policy in Japan.
The Reserve Bank kept the cash rate on hold, at 2.75 per cent, before the release of weaker than expected economic data that showed mixed fortunes in the economy.
The mix of negative data had analysts using phrases such as "tipping point" and "fundamental correction".
For the week, the benchmark S&P/ASX 200 Index fell 188 points, or 3.8 per cent, to 4737.70, while the broader All Ordinaries Index lost 184.7 points, or 3.8 per cent, to 4729.3.
Since hitting its peak of 5220.99 on May 14, the market has shed a massive 9.3 per cent. It is now up just 0.67 per cent this calendar year.
Fund managers said the whipsawing of currency and equity markets was a consequence of talk about the US Federal Reserve's plans to ease its money-printing program.
"I think the rally over the last nine months has been largely illusory," said Blue Sky Apeiron's David Hobart.
"It has been predicated on the expectation of quantitative easing going on forever, and really it has just been a momentum-driven rally on that belief ... I think history will look back on the last four years and say we were seeing a four-year rally when really it was a correction inside an ongoing bear market."
It saw the dollar fell below US95¢ at one stage, continuing the downward trend of the past few weeks.
The dollar has now fallen from US103¢ to US95¢ in less than a month, and currency strategists have been scrambling to revise their projections for where they think the currency will be sitting by year's end.
Westpac's chief currency strategist, Robert Rennie, said the sheer pace of expansion of the US Fed's balance sheet was getting into territory "some would call alarming and others truly incredible".
"We're getting into a situation where the US Fed is formally discussing 'tapering' [slowing down the rate at which it prints money], and the Bank of Japan's liquidity program isn't working like it's supposed to," Mr Rennie said.
"I think we were at that classic tipping point, where we only needed one piece of bad news ... and that was it."
Nomura strategist Tim Rocks said: "I think the market's in a transition from a honeymoon period about quantitative easing to a much more realistic assessment.
"Australia has been the worst-performing major market since this recent rally began, and I think what is going on in Australia is we're just moving into a new phase of the mining bust.
"It's still reasonably clear that the economy turned a corner some time in February or March and it now heading down reasonably quickly."
Frequently Asked Questions about this Article…
The article says the drop was driven by talk of the US Federal Reserve tightening monetary policy (including discussion of 'tapering'), volatile moves in global currency markets driven by bond traders' reactions to Japan's policy, and weaker-than-expected economic data at home. Fund managers described this mix as a tipping point that sent equities lower.
According to the article the S&P/ASX 200 Index fell 188 points, or 3.8%, to 4,737.70, while the broader All Ordinaries Index lost 184.7 points, or 3.8%, to 4,729.3 for the week.
The article reports that since peaking at 5,220.99 on May 14 the market has shed about 9.3%. Year‑to‑date the market was up just 0.67% at the time of the report.
In the article fund managers used those phrases to describe a shift from a momentum‑driven rally—largely predicated on expectations of ongoing quantitative easing—to a more realistic reassessment as central banks discuss slowing asset purchases. They suggested one piece of bad news could trigger a broader sell‑off.
Currency volatility amplified market moves. The Australian dollar fell from about US103¢ to roughly US95¢ in less than a month and even slipped below US95¢ at one stage. That rapid depreciation prompted currency strategists to revise year‑end projections.
Westpac's chief currency strategist Robert Rennie warned the US Fed's balance sheet expansion was extreme and noted the Fed was discussing 'tapering' (slowing money printing). He also said the Bank of Japan's liquidity program wasn't working as intended. Nomura's Tim Rocks said markets are transitioning from a QE 'honeymoon' to a more realistic assessment.
Yes. The article quotes Nomura's Tim Rocks saying Australia had been the worst‑performing major market since the recent rally began and he suggested Australia was moving into a new phase of a mining bust, contributing to a quicker economic downturn.
The Reserve Bank kept the cash rate on hold at 2.75%. That decision came before the release of weaker‑than‑expected economic data which showed mixed fortunes in the economy and helped feed analysts' views that the market was at a tipping point.
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