Tumultuous week ends with local bourse 1% in the red
The Australian sharemarket was at the whims of its global cousins, finishing the week sharply lower as investors continue to digest the US Federal Reserve's plan to roll back monetary stimulus.
For the week, the benchmark S&P/ASX 200 dropped 53 points, or 1.1 per cent, to 4738.8, while the broader All Ordinaries lost 51.7 points, or 1.1 per cent, to 4723.8.
On Wednesday Federal Reserve chairman Ben Bernanke outlined the central bank's plan to pull back its $US85 billion ($92 billion) bond-buying program, should the economy continue to show signs of recovery. An immediate sell-off was triggered on Wall Street which flowed to markets worldwide.
The Australian market recorded its worst single-day loss in more than a year on Thursday, falling 2.1 per cent. European markets took hits upwards of 3 per cent, which then came full circle back to the US, which shed a further 2.5 per cent.
"The US Fed is looking to turn off the cheap money tap," said JBWere executive director Mike Kendall.
"[Bernanke] was pretty clear and pretty unambiguous on his views on the economic outlook and how he's going to implement the tapering of quantitative easing."
While the initial reaction to Mr Bernanke's comments was negative, ultimately it is a signal that the Fed believes the US is on track for economic recovery, which in the end will be beneficial for markets.
"People will eventually turn to the fundamentals and look at what the bigger picture is," Mr Kendall said.
"You'd have to say that it is going to be positive for US corporate earnings, so people will buy that earnings story. The problem is they haven't seen it yet."
Locally, all the banks finished the week lower, with Westpac and CBA each down 1.6 per cent, at $27.72 and $66.06 respectively. ANZ and NAB fell about 1.5 per cent to end at $27.41 and $28.98.
Mr Bernanke's comments also produced a rally in the US dollar against most major currencies. It ended the week 3.6 per cent higher against the Australian dollar.
With renewed buying in the US dollar, gold prices continued to slump, falling 6.7 per cent for the week to $US1297.37 an ounce. Gold is down 22.3 per cent for the year.
"The gold price has been doing what it's done for 35 years ... being inversely correlated to the US dollar," said Macquarie Group chief economist Richard Gibbs.
Australian goldminers took massive hits as a result, with Silver Lake Resources recording the worst loss, down 18.6 per cent to 68¢. Newcrest fell 6.7 per cent to $10.35.
Among other commodity related stocks, Rio Tinto, which was also weighed down by the Mongolian government delaying the first commercial sales at its Oyu Tolgoi mine, fell 2.5 per cent to $52.66. Rival BHP fell 1.4 per cent to $32.45.
And despite the iron ore price rising to $US120 a tonne, Fortescue Metals fell 8.7 per cent to $3.05.
The Australian dollar also dived on the prospects that an end to quantitative easing was on the horizon. The local currency fell to its weakest point since September 2010, trading as low as US91.64¢.
"The dollar has been one of the most elevated in value in line with quantitative easing, so it's not surprising as the Fed starts talking about tapering, that one of the key beneficiaries starts to wilt," Mr Gibbs said.
In late trade on Friday, the dollar was fetching US92.29¢.