US Fed speculation pushes market down
It was also weakened a little by the Reserve Bank's decision on Tuesday to cut the official cash rate to historic lows. The dollar rebounded from its recent low, closing the week around US91.4¢.
For the week, the S&P/ASX 200 Index fell 61.6 points, or 1.2 per cent, to 5055.2 points, while the broader All Ordinaries fell 59.9 points, or 1.2 per cent, to 5038.8.
Economic data and central banks dominated news this week.
Speculation that the US Fed would begin winding back its stimulus program earlier than expected peaked on Wednesday when the S&P/ASX 200 Index dropped 1.9 per cent, its biggest one-day fall since July 3, and Japan's Nikkei plunged 4 per cent.
The market never recovered from the blow. Market watchers questioned the intensity of the speculation - because who cares if the Fed starts "tapering" a few months earlier? - but it was too late.
The market lost $27.2 billion in one day. It was the deepest one-day rout in almost six weeks.
It came a day after the ASX shed 0.1 per cent following the Reserve Bank's decision to cut Australia's cash rate to 2.5 per cent and helped to snuff out a potential three-week rally. Anyway, the Reserve Bank cut another 0.25 percentage points off the cash rate, and its economic outlook that accompanied its rate decision was noticeably subdued.
Politicians offered their best explanations for the RBA's rate cut.
The federal government and Coalition spent the rest of the week trying to convince voters why the move was a sign that the economy was in fine or dire health.
Commonwealth Bank economist Michael Workman said the Reserve still appeared to be biased towards further monetary policy easing.
"The RBA's qualitative assessment of the outlook involves the economy running below trend until mid 2014, unemployment edging higher for a year or so and the inflation rate remaining in the bottom half of the target range," he said. "[But] the policy decision over the remainder of 2013 will remain data dependent.
"We will stick with our 2.5 per cent cash-rate call but will watch labour market trends and the Aussie dollar very closely in assessing the case for any further cut."
For the week, Rio Tinto rose 94¢, at $60.25. It returned to profitability in the first half of 2013 but it had to sack thousands of workers and slash $US1.5 billion in costs to get there.
Telstra rose 2¢, at $5.08 after reporting a 12.9 per cent rise in full-year net profit to $3.9 billion, with revenue up 2 per cent to $26 billion.
Cochlear shed 28¢, at $58.32, as the hearing implant maker said the success of the rollout of its Nucleus 6 device would be important for the company's financial results in the 2014 financial year. With AAP
Frequently Asked Questions about this Article…
The sharemarket fell mainly on speculation the US Federal Reserve might start winding back its multibillion-dollar stimulus in September rather than December. The S&P/ASX 200 dropped 61.6 points (1.2%) to 5055.2 for the week, and a one-day rout tied to Fed tapering fears wiped about $27.2 billion off the market. A Reserve Bank of Australia cash-rate cut and a rebound in the Aussie dollar also weighed on sentiment.
Speculation that the Fed will begin 'tapering' stimulus earlier can trigger sharp market moves and increased volatility—this week it sparked a 1.9% one-day fall in the S&P/ASX 200 and a 4% drop in Japan's Nikkei. For everyday investors it means markets can react strongly to shifts in central-bank expectations, so short-term swings may not reflect long-term fundamentals.
The RBA cut Australia's cash rate to historic lows (reported at 2.5% in the article and with a further 0.25 percentage-point easing noted), which briefly knocked the ASX down and helped end a potential three-week rally. The RBA’s subdued economic outlook and comments that policy will remain data dependent added to cautious investor sentiment.
For the week the S&P/ASX 200 fell 61.6 points (1.2%) to 5055.2, and the broader All Ordinaries slipped 59.9 points (1.2%) to 5038.8. The S&P/ASX 200 also recorded a 1.9% one-day drop mid-week—the sharpest daily fall since early July—driven by Fed tapering speculation.
The Aussie dollar rebounded from recent lows and closed the week around US91.4¢. Currency moves matter because the RBA monitors the Aussie dollar when assessing future rate decisions, and swings can impact exporters, importers and the earnings of companies with overseas exposure.
Rio Tinto shares rose 94¢ to $60.25 after the miner returned to profitability in the first half of 2013. The company achieved this after sacking thousands of workers and cutting about US$1.5 billion in costs. For investors, the move highlights how cost-cutting and restructuring can drive near-term earnings recovery.
Telstra rose 2¢ to $5.08 after reporting a 12.9% rise in full-year net profit to $3.9 billion and a 2% increase in revenue to $26 billion. Cochlear fell 28¢ to $58.32 after the hearing-implant maker warned that the success of the Nucleus 6 rollout will be important for its 2014 financial-year results.
Investors should monitor central bank communication—especially from the US Fed and the RBA—upcoming economic data, labour-market trends, and the Aussie dollar. The article notes the RBA’s stance will remain data dependent, and market moves this week were dominated by economic data and central-bank expectations.
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