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Billions wiped off Market in Share Bloodbath

Sarah Michael
Daily Telegraph
June 4, 2012

AUSTRALIAN shares have closed at a six-month low with an estimated $23 billion wiped off the market.

But what's bad news for investors is good news for homeowners, with the carnage putting pressure on the Reserve Bank of Australia to cut interest rates at its monthly board meeting tomorrow.

"The market has taken an absolute beating," said Geoff Saffer, head of research at Australian Stock Report.

The energy and resources sector lead today's losses, with big mining stocks including Riot Tinto, BHP Billiton and Fortescue taking a hit.

"We've had a two-speed economy and it's starting to look like the mining sector isn't necessarily going to be able to bail out the rest of the economy with super-strong growth," Mr Saffer said.

The major banks also fell heavily, and Myer hit a record low.

Telstra and gold stocks were the only bright spots, as investors rushed into safe havens.

At the close on today, the benchmark S&P/ASX200 index was down 78.9 points, or 1.94 per cent, at 3985.0. The broader All Ordinaries index was down 83.5 points, or 2.03 per cent, at 4033.4.

On the ASX 24, the June share price index futures contract was 80 points lower at 3990 with 33,089 contracts traded.

It is the first time since November that the S&P/ASX200 has dropped below the critical 4000 point mark. It reached 3984.3 on November 25.

Case for rate cut grows

IG Markets strategist Stan Shamu said global market worries are adding pressure to the RBA, with a growing number of analysts calling for a rate cut tomorrow.

A survey has showed that 14 out of 20 economists are now predicting a rate cut, Sky News reported

."The RBA is now in a situation where they’ll have to play a bit of catch up because it seems like things have deteriorated much faster than they expected since the beginning of May,” Mr Shamu said.

"Everyone just feels like even [last month’s] 50 basis point rate wasn’t enough and they might need to do a little bit more.”

Mr Shamu said the fact that the Government is chasing a surplus “isn’t helping”, with the RBA on their own in efforts to stimulate spending.

Commsec economist Craig James said he favoured waiting until August for another cut following June inflation data, but he thought a 0.25 per cent cut at least was likely.

Rates were cut by half a per cent to 3.25 per cent last month, but consumer confidence data so far showed that had not worked, Mr James told AAP.

"We haven't had too much of a response to the interest rates cut, the bad news in Europe basically serving to offset any stimulus being applied here in Australia," he said.

AMP chief economist Shane Oliver was more pessimistic, saying a 50 basis point cut was needed with China's economy slowing more than expected and Australian home sales poor with the cash rate to hit 2.75 per cent by year's end.

Punters are putting their money on another 50 basis point cash rate cut.

TAB Sportsbet media manager Matt Jenkins says there's been ``overwhelming interest'' for a 50 basis point cut to 3.25 per cent, with the odds shrinking to $1.95 from $4 last Thursday.

Aussie economy is strong - Swan

Treasurer Wayne Swan says Australians should keep concerns about the global economy in perspective.

The local economy's underlying strength is a defence against looming disruptions in the eurozone, he says.

"We face these challenges from a position of strength,'' Mr Swan told ABC Radio today.

"We have solid growth, we've got low unemployment, a healthy financial system, strong public finances and a huge investment pipeline.''

Inflation was under control and a cash rate at 3.75 per cent left more room to move in providing stimulus to the economy.

Mr Swan said decisive action in Europe was needed to stabilise the eurozone economy.

"There is going to be a very long and painful adjustment in Europe,'' he said.

Worrying data sparks global selloff

The weakest US jobs figures in a year released on Friday (8.2 per cent unemployment) triggered heavy falls on both north American and European markets.

"A torrent of recent economic data now reveals weakness, and investors are beginning to take notice," said Peter Schiff of Euro Pacific Capital.

In Asia on Friday, figures showed that China's manufacturing activity grew at a much slower rate than expected in May, further confirmation that the world's number two economy was slowing rapidly after recent poor figures on trade, investment and industrial output.

"China's manufacturing numbers did nothing to quell the growing concerns that it might suffer a harder landing than previously forecast," said Rebecca O'Keeffe, head of investment at online brokerage Interactive Investor.

This figure is particularly worrying for Australia, because the Federal Government's plan to return the Budget to surplus is banking on the assumption that the China-driven resources boom will continue.

The official purchasing managers index (PMI) fell to 50.4 from 53.3 in April, the China Federation of Logistics and Purchasing said in a statement.

Market hit by eurozone carnage

Also on Friday, data showed that eurozone unemployment stood at a record high of 11 per cent, with Spain the hardest hit at 24.3 per cent in April.

More than 17.4 million people were jobless in the 17-nation single currency area in April, as 110,000 more men and women joined unemployment queues, according to Eurostat data agency.

The news comes as Greece's political and economic future remains uncertain and Spain's banking sector looked increasingly fragile, stoking fears that debt-laden Madrid could need an international bailout.

The yield on 10-year Spanish bonds dipped to 6.424 per cent from 6.536 per cent at the close on Thursday.

For a eurozone country such as Spain, an interest rate above 6.0 per cent is considered dangerous territory with respect to its ability to refinance public debt.

Countries that had to pay 7.0 per cent or more, including Greece, Ireland and Portugal, were forced to negotiate international bailouts.

In the US on Friday, the Dow Jones Industrial Average dropped 2.2 per cent, the broader S&P 500 index shed 2.5 per cent and the tech-laden Nasdaq gave up 2.8 per cent.

In Europe, the German and French markets plunged by more than two and three per cent respectively, while London's FTSE 100 retreated by more than one per cent.