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Markets Live: Worst day of the year

Australian shares were sold off today, posting their worst day of the year, as European election results that threaten the region's debt plans weighed on sentiment.

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Markets plunge after weak overseas data

Disappointing US jobs growth and European election results have clobbered the markets and sent the Australian dollar down, Chris Zappone reports.

4.55pm: That brings our live coverage of today's market session to an end. Thanks for reading this blog and posting your comments. We'll be back tomorrow morning at 9.30am.

For a wrap of today's session, click here.

4.45pm: The growing uncertainty about the eurozone's future following elections in Greece and France over the weekend, saw investors rush to safe havens such as Australian government debt today.

The three-year contract leapt 0.17 points to 97.330, its highest since 1992, while the 10-year contract exploded 0.15 points to 96.650, a fresh all-time high. Likewise, 10-year government cash bond yields hit new 60-year lows at 3.40 per cent. Bond prices and yields move in opposite directions.


Australian bonds have been enjoying strong support from investors across the globe worried about Europe and the United States. Australia is one of the few remaining AAA-rated countries in the world.

4.41pm: The Australian dollar is hovering close to the year's low after a broad retreat from risk on renewed economic concerns in the United States and Europe.

The Aussie dollar is trading around $US1.0157, having earlier touched $US1.0111, its lowest so far this year.

"We have a falling interest rate environment Down Under, global growth concerns and a situation in Europe. It's all far greater than whether retail sales for one month were better than expected," says a trader at a European bank in Singapore.

4.35pm: French government bonds have opened lower, driving the five-year yield three basis points higher to 1.63 per cent in early trade.

The 10-year yield rose four basis points to 2.86 per cent, while the two-year yield was little changed at 0.61 per cent.

We’ve got what may well prove to be the next wave of instability from Europe.

Meanwhile, German 10-year bond yields fell as low as 1.552 per cent in early trade, while Spain's 10-year yield jumped to 5.828 per cent, bringing it close to 6 per cent, which is considered an unsustainable level.

4.27pm: Arafura Resources has struck a deal with a mystery South Korean conglomerate to potentially co-develop its Australian rare earths project, as Korea is forced to look beyond major producer China for its supply.

The name of the "Korean multinational organisation" involved with Arafura was not released in an Arafura announcement to the Australian Securities Exchange today, although, Arafura did tell the market a memorandum of understanding had been signed between the pair.

Rare earths are a combination of key minerals needed in high tech products from smartphones to missile guidance systems. China accounted for nearly 80 per cent of South Korean’s rare earths imports last year, according to Korean Customs Service data.

Arafura's shares closed flat at 25 cents, easily outperforming the rest of the materials sector.

4.19pm: Here's how some of the blue chips performed today:

  • BHP: -4%
  • Rio: -4.5%
  • Fortescue: -6%
  • ANZ: -1.45%
  • CBA: -1.1%
  • NAB: -1.7%
  • Westpac: -0.8%
  • Woolies: -1.15%
  • Wesfarmers: -1.4%
  • Telstra: -1.4%

4.15pm: All sectors closed in the red but losses were led by the materials sector, which plunged 3.6 per cent. Energy fell 3.4 per cent, consumer discretionary lost 2.6 per cent and consumer staples were down 1.3 per cent despite better than expected retail sales numbers and financials fell 1.4 per cent.

4.12pm: The market has closed just above the day's lows. The benchmark S&P/ASX200 index slumped 94.7 points, or 2.2 per cent, to 4301.3, while the broader All Ords fell 97.8 points, or 2.2 per cent, to 4361.6.

4.07pm: As the ASX does the final calculations for today's close, European stock index futures are signalling sharp losses, as election results in Greece and France spark worries over public support for austerity measures seen by most investors as key to fixing the euro zone's debt crisis.

Futures for Euro STOXX 50, for Germany's DAX and for France's CAC are down 2.3-2.7 per cent. The UK market is closed for a holiday.

S&P500 futures are down by a bit more than 1 per cent, indicating lower losses when Wall Street opens later today.

4.01pm: With the government carrying on the time-honoured tradition of leaking, we already have some idea of how tomorrow's budget will look. Here’s what we've gleaned so far:

  • The introduction of a ‘loss carryback’ option for small business.
  • A company tax cut of 1 percentage point to 29 per cent, assuming it gets through Parliament.
  • Cash payments for parents. The ‘Schoolkids Bonus’ will give $820 for parents with teenagers at school and $410 for parents of primary school students.
  • It will be given to recipients of Family Tax Benefit and does away with the need to keep education-related receipts. 
  • Pushing 100,000 sole parents off parenting payments and on to Newstart when their child turns eight, delivering $700 million in savings over four yeas.
  • Welfare payments for people travelling overseas for more than six weeks will be cut. 
  • Billions of dollars in savings from the Defence budget.
  • The superannuation contribution tax will be doubled to 30 per cent for people  on incomes above $300,000.
  • The living-away-from-home allowance for executives will be cut, saving $1 billion. 
  • Funding for the national disability insurance scheme, earmarked to start next year. Changes to aged care funding, as detailed in its recent aged-care report.
  • About half a billion for dental care. 
  • Cuts to green schemes, to avoid duplication with the carbon tax. 
  • $3.5 billion in funding to finish the Pacific Highway dual carriageway.

And what is speculated:

  • Support for the manufacturing industry.
  • An end to the 32¢ a litre diesel fuel rebate.
  • A skills package encompassing apprenticeships and vocational skills.

3.49pm: WTI crude oil has dropped well below the $US100 mark, falling more than $US3 a barrel, while Brent crude fell more than $US2.50 after the European election results and poor US jobs data.

US crude was last at $US97.04 while Brent was at $US112.42.

Oil prices may fall further on ‘‘lacklustre’’ macroeconomic conditions, easing geopolitical tensions and bearish fundamentals, says Morgen Stanley head of commodities research Hussein Allidina.

3.43pm: Greece’s election results increase the risk of the country leaving the euro within the next year to 18 months to as high as 75 per cent, Citi says.

The probability of such an event within the next 12 to 18 months is between 50 per cent and 75 per cent, Guillaume Menuet and Juergen Michels write in a report. They previously attached a 50 per cent likelihood to the risk.

‘‘However, even after the elections in Greece, France and Germany, we regard the probability of a broad-based break-up of the monetary union as very low,’’ the economists write. ‘‘We continue to expect that in reaction to Greece leaving the euro area, more far-reaching measures from governments and the’’ European Central Bank ‘‘would be put in place.’’

3.34pm: The ASX200 has just dropped below 4300, for the first time in three weeks. The current 2.2 per cent plunge is also the biggest drop in the market since December 19.

3.27pm: Metals and mining stocks are down 4 per cent, financials are down 1.4 per cent and the industrials sector is down 2.1 per cent.

3.22pm: A bad day on the market just keeps getting worse.  The ASX200 has sunk to another low - it's now down 88 points, or 2 per cent, to 4307.8.

3.15pm: An early test of the new Franco-German relationship will be whether France's next president, Francois Hollande, backs Wolfgang Schäuble to succeed Jean-Claude Juncker as head of the eurogroup of eurozone finance ministers, says the FT.

French and German officials say however that a compromise on the fiscal discipline treaty agreed in March, despite Hollande’s threats to reopen negotiations. But two-round parliamentary elections in June mean Hollande will be reluctant to concede too much.

3.08pm: Leighton shares have dipped after the construction giant said that the completion date for Brisbane’s Airport Link toll road has been pushed back by almost two months.

The company said this morning that the Airport Link should be open to traffic on or before August 20, instead of the previous forecast of June 30.

Leighton shares are down 2.8 per cent at $19.41.

3.04pm: Financial spreadbetters expect Europe's main stock indexes to sink today, adding to the previous session's selloff as investors dump risky assets following elections in Greece and France that revived fears over the euro zone debt crisis.

Spreadbetters expect Frankfurt's DAX to open around 152 points lower, or down 2.3 per cent, and Paris's CAC 40 to open around 65 points lower, or down 2.1 per cent. The market reaction will be exaggerated by a public holiday in Britain.

Losses on Wall Street are expected to be lower, with S&P500 futures down about 1 per cent.

3.01pm: NAB has weighed in on the European election results and their affect on the euro:

‘‘The Hollande win in France is not necessarily a surprise. However, it brings home the reality that incumbents following the (European Union’s) prescribed austerity measures are going to find it difficult to remain elected,’’ National Australia Bank says in a note.

‘‘What happens to these austerity measures now is what is weighing on (the euro)."

The euro skidded to $US1.2954 in early trade, its lowest level since late January, while also slumping to 103.22 yen at one stage. It's currently buying $US1.2978 and 103.53 yen, still well down from $US1.3082 and 104.50 yen late Friday in New York.

2.56pm: Looking ahead to tomorrow's federal budget, St George Bank chief economist Hans Kunnen says non-means tested benefits are likely to bear the brunt of cuts.

  • Some of the target seems to be middle-class welfare and higher-income welfare, where benefits have not been means tested and people on high incomes are still getting benefits.
  • We saw some of the aged care issues a month ago, when they changed funding for aged care, and there have also been changes to superannuation.
  • It will be those sorts of things, not massive cuts. It’s possible for them to find $2-3 billion relatively easily without crippling the economy.

2.48pm: David Llewellyn-Smith in his piece Asset bust in slow motion argues that Australian asset prices face a slump - the question is just will it be short and painful or steady and manageable.

For the answer, he looks at the US and Japan as two countries that have experienced major asset price deflation.

The US model is one: swift and painful house price falls, rocketing unemployment, as well as big falls in labour costs and a big jump in productivity and a temporary surge in public borrowings.

The other model is that of Japan. Japan’s asset price falls were paced over a much longer time period than those of the US or Europe.

The resulting economic shakeout was different too, with a much longer time frame of subdued economic growth, a more slowly rising unemployment rate and a steady but longer rise in public borrowings to offset the private sector’s slower paced deleveraging. In short, in Japan, collective private losses were socialised over a much longer time frame.

Here's an interesting house price chart by Steve Keen showing the US and Japanese paths, and an emerging Australian one:

2.40pm: Two years ago, Reserve Bank governor Glenn Stevens gave punters a very public warning not to bet on house prices rising, writes Michael Pascoe.

It turned out to be good advice.

Now the RBA is pointing to housing remaining subdued until lower purchase prices, higher rental yields and population growth get us building again.

Full story here.

2.33pm: If futures markets are on the money, markets in Europe and the US could be in for a wild ride.

FTSE futures are down almost 2 per cent, while US futures are down about 1 per cent. 

2.25pm: More on Holden... the car maker says its local operations are viable and sustainable but it doesn’t expect to grow imports while the dollar remains high.

The company says car producers in Australia continued to face tough conditions with disrupted supplies of components, unfavourable exchange rates and stronger competition from importers.

Holden has a limited ability to compete with import companies that continued to chase aggressive pricing in the local market, chief financial officer George Kapitelli says.

But he says Holden has made fundamental improvements to its cost base over the past two years, and the savings reflected in a brighter longer-term outlook for the company.

‘‘Plant utilisation has increased considerably and local production is viable and and sustainable with two car lines at Holden vehicle operations.’’

2.16pm: Despite today's better than expected economic data, which has given the dollar some respite, the bond market is continuing its remarkable rally.

Yields on the 10-year bond dropped as low as 3.407 per cent this morning, and were recently at 3.418 per cent.
It was only last week that the yield dropped below 3.5 per cent, plumbing lows last seen in the 1950s.

2.11pm: CommSec's Craig James says the clear conclusion from today's economic data is that the Reserve Bank can cut rates again.

"However the RBA is likely to take a few more months to weigh up all the influences. CommSec is pencilling in a rate cut in August after the next inflation data."

2.05pm: Locally, gold stocks are down 1.6 per cent.  Among the bigger participants in the sector, Newcrest is down 1.2 per cent, Evolution Mining is down 3.6 per cent and St Barbara is down 1.6 per cent.

1.57pm: Gold prices are also lower, pressured by a stronger greenback after elections in France and Greece cast doubts on whether the euro zone will be able to battle the debt crisis.

Spot gold fell 0.2 per cent to $US1638.45 an ounce, off the low of $US1626.50 hit on Friday.

"We really need to see economy much weaker before the central bank steps in," says Dominic Schnider, head of commodity research at UBS Wealth Management in Singapore.

"For now the market is in risk aversion mode. With inflation threat out, oil prices coming off and QE hurdles really high in developed economies, gold is in a vulnerable position." 

1.49pm: ANZ head of Australian economics and property research Ivan Colhoun says the job advertisement figures were essentially in line with what was expected.

‘‘I think there are two issues - firstly, our estimates for this month suggested that job adverts were weaker in April,’’ he says.

‘‘That was pretty much across the board - every state, every territory, except for the Northern Territory.

‘‘However, there’s been strength in WA in the last couple of months, so I wouldn’t overplay weakness there.

‘‘The second issue is that we have one data provider who may have been giving us inaccurate data. We’re investigating that at the moment,’’ he says.

‘‘ANZ is confident that the estimated drop in advertising of around three per cent reported in April is broadly correct.’’

1.41pm: Another company feeling the pinch today is Japanese electronics giant Sony.

Sony has dropped to its lowest level in 25 years on concerns that a weaker euro may hit Japanese exporters’ sales in Europe.

Its stock dropped as much as 4.4 per cent to 1214 yen - its lowest level since April 25, 1987, according to data compiled by Bloomberg. Japan’s benchmark Nikkei 225 Stock Average is down 2.6 per cent.

Others on the slide include Canon which has fallen 2.9 per cent and Panasonic which is down 3.5 per cent.

1:33pm: Oil prices are extending losses in Asian trade.

New York’s main contract, West Texas Intermediate crude for delivery in June stayed below the psychological $100 threshold, falling $US1.92 to $US96.57 a barrel in morning trade.

Brent North Sea crude for June shed $US1.48 to $US111.70.

‘‘Oil has gone down sharply because the election results have raised concerns about whether the eurozone can beat the debt crisis,’’ says Nick Trevethan, senior commodities strategist at ANZ Research.

‘‘There is a worry about a rejection of austerity and people are also worried about a eurozone recession,’’ he added.

1.28pm: Here's an update from markets across the region:

  • Tokyo stocks are down 2.6 per cent
  • Hong Kong stocks are down 2.4 per cent
  • Shanghai stocks are down 0.14 per cent
  • South Korea's Kospi is down 1.6 per cent
  • New Zealand stocks are down 0.6 per cent

1.23pm: A change of pace from the small business desk....blogger Tony Featherstone questions the favourable coverage of entrepreneurs.

Does the media focus too much on successful ventures?

"Entrepreneurs are partly to blame: they are only too happy to talk when things go well, but rarely want to talk about failure or their insecurities for fear it will damage their brand.

Consequently, we don’t gain genuinely valuable insights into how they deal with failure, and recover."

1.18pm: HSBC Australia chief economist Paul Bloxham says today's data shows conditions in the retail and building sectors are improving.

Following that rate cut, both sectors are likely to continue to strengthen, he says.

‘‘These are the sectors, retail and housing, that are most interest rate sensitive; these are the parts of the economy that, when you get the effects of the RBA’s cut, will see the most significant improvement.’’

‘‘So they are already looking like they are picking up and bit and they will get an extra fillip from that rate cut.’’

1.10pm: HIA Economist Geordan Murray says while the latest building data is positive, it follows an 8.8 per cent decline for the previous month.

"The volume of building approvals in March still implies an annual rate of around 130,000 homes per annum which leaves the industry teetering on the verge recession,” he says.

“The positive update in today’s building approvals is driven by a rebound of 49.3 per cent in New
South Wales which reclaimed some of the ground lost by the 41.4 per cent observed last month. The
resurgence in NSW primarily occurred in the ‘other dwelling’ segment."

1:04pm: Commonwealth Bank will cut about 100 jobs in Melbourne as it makes changes to its mortgages business to deal with weak demand.

CBA says it will close its mortgage services processing site in Melbourne at the end of 2012, and move some of the processing services to interstate centres.

Some staff will be redeployed, but the restructure is expected to result in around 100 redundancies, the bank saiys.

‘‘Our priority remains to redeploy the majority of the staff who work in that centre and we have been successful in identifying alternative opportunities for many of our staff,’’ the bank said in a statement. ‘‘We will continue to work our staff over the next six months.’’

12.52pm: The dollar may is trading above the day's lows after receiving some support from the economic data, but it's much too early to call it a recovery. The Aussie is buying $US1.0135, up form a low of $US1.0110 this morning but still well below Friday's local close of $US1.0264.

JPMorgan's Ben Jarman says that weak US jobs data were the first catalyst in pulling the Australian dollar down, followed by the success of anti-austerity leaders in European elections.

  • It started with a disappointment in US payrolls, which didn’t bode well for the currency,’’ he says. ‘‘Then we had the French and Greek election news, which has given markets some outcomes that they’re not viewing too favourably.
  • Hollande’s victory looks like it could make relations with the Germans and the other policy-makers in Europe a bit more difficult.
  • There could be more political ructions as they try to find a path between keeping the economy on-track and also delivering the austerity that markets want.

12.45pm: Economists say the surprisingly strong retail sales and building approvals numbers mean there's less of a chance of a rate cut in June.

Macquarie senior economist Brian Redican says the retail numbers are the ones that really stand out:

  • It certainly reduces the chances of a follow-up move by the Reserve Bank in the next couple of months.
  • I don’t think policy makers are going to be doing cartwheels in the street and saying its all up from here.T
  • Two things that could be going here is firstly difficulty in finding that right balance between price cuts and volume increases. Secondly the month of March can be affected by the timing of Easter.

JPMorgan economist Ben Jarman says the retail and building approvals numbers show the economy is in a better position than previous data had suggested.

  • In retail trade we have the strongest number for at least a year, which is surprising given the context we’re looking at, with falls in consumer confidence and growing concerns about the global economy again.
  • So it runs contrary to that, but if you look at the breakdown, there are some broad-based improvements.
  • We don’t think this means that consumers are getting excited, it’s just a bit of stabilisation.

12.39pm: Moving back to local news: Holden is feeling the pinch, posting an $89.7 million after-tax profit for 2011, with the result impacted by a softening large car market and a shortage of some imported vehicles.

Holden's revenue was $4.3 billion for 2011, down from $4.4 billion in 2010. Its profit result compared to the $112 million net profit the company reported in 2010.

Local vehicle production was up 36.8 per cent in 2011, with 90,424 cars built at its assembly plant in South Australia, compared to 66,061 in 2010.

12.35pm: One US researcher says global markets, which are jittery following European elections on the weekend, are likely to give France’s new president a chance.

“Markets will not attack France right away,” Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington, told the New York Times. “But there is a risk that if Mr Hollande does not act early on, France will become the next sick man of Europe.”

Mr Hollande vowed to unwind some of the austerity measures that his predecessor, Nicolas Sarkozy, agreed with German Chancellor Angela Merkel and other European officials.

12.33pm: Not sure if investors are agreeing with Mr Krugman's assessment, as the ASX200 falls even lower...

What do you think: is it a good thing that Europe is likely to move away from its austerity commitments. Send us your comments.

12.30pm: Paul Krugman, on the other hand, writes in an op-ed piece for the NYT that the European election results show time is clearly running out for the strategy of recovery through austerity — and that’s a good thing:

Mr. Hollande’s victory means the end of “Merkozy,” the Franco-German axis that has enforced the austerity regime of the past two years. This would be a “dangerous” development if that strategy were working, or even had a reasonable chance of working.

But it isn’t and doesn’t; it’s time to move on. Europe’s voters, it turns out, are wiser than the Continent’s best and brightest.

12.23pm: A key reason for today’s market fall, Francois Hollande’s victory in the French presidential race, has caught the attention of Coalition treasury spokesman Joe Hockey.

In Canberra today, Mr Hockey said he was concerned about Mr Hollande’s proposal to renegotiate the austerity package, adding that Europe’s shift to the left would “have an impact on the world”:

  • The fact that the new president of France is advocating a rollback of austerity measures, and they are very modest measures compared to what we have in Australia, is of concern.
  • As I said in London, the Europeans need to make sacrifices if they expect the rest of the world to provide support.
  • When Wayne Swan committed a credit line of $7 billion to the IMF, I urged that we get something out of the Europeans in return.
  • Now the Europeans are turning to the left, and they are turning to the left in a rather dramatic way. It will have an impact on the world.

12.20: And that's despite some rare good economic news (retail sales and building approvals), which may actually boost local growth as the following economists have tweeted:

12.19pm: Today's heavy losses are putting the local market on track for its worst day since mid-February.

12.15pm: Regional markets have opened sharply lower, adding to the pressure on local stocks (and explaining why we've just hit the day's lows):

  • Japan (Nikkei): -2.4%
  • Shanghai: -2%
  • Hong Kong: -2.4%
  • Taiwan: -2.1%
  • Singapore: -1.6%
  • South Korea: -1.7%

12.11pm: Mining giants BHP Billiton and Rio Tinto are among those under pressure - down 3.5 and 3.8 per cent respectively.

12.06pm: Despite some positive economic news - the market has dropped to its lowest point for the session. The ASX200 is now down 76 points, or 1.7 per cent, at 4318.2.

12.02pm: Conditions for businesses worsened in April, as the gap between the mining and non-mining sectors widened.

The National Australia Bank monthly business condition index fell to zero in April from a reading of 3 in March.

"Conditions deteriorated across all industries in April, with the exception of mining and retail - with the latter's sales boosted by further aggressive discounting," says NAB's chief economist Alan Oster.

Business conditions for mining stood at 53 points in April up from 31 in March, while conditions for retail rose to minus-3 in April from minus-15 in March. 

11.58am: More on the ANZ jobs data... the bank has noted that recently reported tentative strength in the labour market may have been overstated because of unreliable data it has received.

“ANZ is currently investigating the reliability of data provided by a small internet website, which has been driving the recent improving trend in overall job advertising,” the bank says.

11.54am: AMP Capital Investors head of Investment Strategy and chief economist Shane Oliver says the positive result in the retail sector is "being driven by price discounting rather than underlying strength". 

11.45am: The economic data continues to roll in... Australian residential building approvals rose 7.4 per cent to 11,501 units in March.

This compares to a downwardly revised 10,710 units in February, seasonally adjusted.

In the year to March, building approvals were down 15.0 per cent, the ABS says.

Economists’ forecasts had centred on a 3 per cent rise in approvals in March.

11.40am: In bad news for job seekers, ANZ job ads dropped 3.1 per cent in April. The bank, meanwhile, has acknowledged that it has had reliability issues with one of the data providers for the forward looking reading on the labour market.

11.37am: Retail trade rose in the month to a seasonally adjusted $21.231 billion, compared to a upwardly revised $21.032 billion in February the ABS says.

For the three months to March, retail spending rose 1.8 per cent.

11.34am: The dollar has gained on the release, rising to $US1.0130.

11.30am: Retail sales data from the ABS is in - and there's finally some good news for the beseiged sector. Sales for March rose 0.9 per cent, well above the expected 0.2 per cent gain.

11.25am: The dollar, meanwhile, continues to be under pressure. It's now at its lowest point for the session, trading at $US1.0111.

11.18am: Investors don't like the outlook for Australia's retailers, stripping more than 1.5 per cent from the some the major names so far:

  • Wesfarmers - down 1.73%
  • Harvey Norman - down 1.37%
  • David Jones - down 2%
  • Myer - down 2.48% 
  • Woolworths - down 0.78%

11.14am: The big banks are weathering the storm today and remain well ahead of the general market. An hour into today's session they are outperforming both the mining sector and the major retail stocks:

  • CBA is 0.53% lower to $52.34
  • ANZ is 0.81% lower to $23.25
  • NAB is 1.1% lower to $24.86
  • Westpac is 0.65% lower to $22.76

11.08am: We’ll also have a rush of economic numbers to digest in the next few minutes.

Retail sales for March will tell us how much the general consumer gloom has translated into actual spending (or the lack of it). The market is still tipping a 0.2 per cent increase for the month, matching the gain in February

Building approvals for March will also be out. A 3 per cent month-on-month gain is tipped by economists, but the year-on-year number may look ugly – off 18 per cent.

And we’ll get business conditions from NAB and job ads from the ANZ ... so it’s a big pre-budget day of economic stats.

11.02am: While we're on the subject of polls, Australians are lowering their hopes for the dollar. A Fairfax online poll today of about 3000 people tipped the Aussie would end the year below parity, and 75 per cent tip it will be at parity or lower. Have you say.

10.55am: Looking at this morning's poll, which just closed, 59 per cent of today's 2074 voters reckon the ASX200 will close more than 1 per cent lower. That's a pretty safe bet at this stage with the ASX200 back to a loss of 1.5 per cent.

Still, spare a thought for the contrarians. Seventeen per cent predicted the market would close more than 1 per cent higher. Here are the full results.

10.54am: Whitehaven Coal is continuing its expansion, launching a $172 million offer for NSW coal explorer Coalworks.

Whitehaven took a 17 per cent share in Coalworks when it bought Aston Resources for $720 million in April. Now, Whitehaven has offered $1 for each remaining Coalworks share in an off-market takeover bid, well above the 85.5 cents the shares last traded at.

Earlier this year, Whitehaven became the nation's biggest independent coal miner when it agreed a $2.5 billion takeover of Aston and a local coal explorer, both controlled by electrician-turned billionaire Nathan Tinkler.

10.46am: Rio has clawed back some its early losses. Its shares are 3.02 per cent lower to $62.95. That's well ahead of the general market, which hit bottom at 1.5 per cent lower but has edged back to a loss of 1.3 per cent down.

Why is it suffering such a rough start to the week? As resources writer Peter Ker notes, it could have something to do with one of its mines in Guinea, West Africa.

Investors could be reading reports out of London that a Chinese consortium is trying to swoop on Rio’s Simandou iron ore project in Guinea. Perhaps more significantly, the benchmark iron ore price into China was slightly lower over the weekend, falling $US2 to $US145 per tonne. This was largely due to an increased amount of Brazilian iron ore coming onto the market.

Perhaps punters are also taking some cover ahead of a Federal Budget tomorrow which could hit miners in a couple of places. 

10.39am: ANZ has weighed in on interest rates, reviewing its forecast of how many rate cuts the RBA has in store this year. In a note this morning, ANZ writes:

  • In Australia recent anecdotes on the mining sector have not been positive, and we have upgraded our forecasts to now look for an additional 75bp of rates cuts this year, on top of the 100bp already delivered so far this cycle.
  • The tightness in fiscal policy likely to be formalised in tomorrow's budget will likely keep domestic sentiment under pressure, with consequent implications for the AUD. 

How much of those cuts ANZ decides to pass on is another question altogether.

10.35am: One reason for the dollar’s retreat is that a weaker global economy is likely to prompt the Reserve Bank to cut official interest rates again soon.

This morning, investors were viewing the likelihood of a rate cut of 25 basis points when the central bank next meets on June 5 as a four-in-five chance. In one year’s time, the cash rate will be down to 2.75 per cent, according to Credit Suisse.

If true, that 2.75 per cent would be below the 3 per cent mark during the depths of the global financial crisis.

As noted a few moments ago, Japan’s benchmark Nikkei 225 share index is down 2.8 per cent. Easy to see why: money is flooding into the yen as that currency resumes its haven status. 

10.32am: "We’ve got what may well prove to be the next wave of instability from Europe," says Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp. "There’s a clear voter rejection of austerity evident."

The Australian dollar has continued losing ground, hitting $US1.0121 just a few minutes ago, but falling as low as $US1.0110, the lowest since December 29. It lost 0.4 per cent to 80.95 yen, after trading at 80.57, the weakest since January 30. 

10.30am: Japanese stocks are also sharply lower, with the Nikkei 225 heading for its biggest decline in six months, amid growing concern over Europe’s debt crisis.

The Nikkei 225 sank 2.7 per cent to 9122.97 as of 9:03am in Tokyo, set for its steepest drop since November 10. 

10.27am: S&P500 futures down about 1 per cent, pointing to another tough day on Wall Street at the start of trade later today.

10.24am: It's a real mixed bag leading the market lower. Here are some of the biggest losers early on:

  • BHP - down 2.5%
  • Rio - down 3.22%
  • Macquarie - down 3.22%
  • Santos - down 2.83% 
  • Woodside - down 2.01%
  • David Jones - down 2%

10.17am: Only nine companies in the top 200 are trading in positive territory. Losses on the ASX200 are now at about 1.57 per cent, or $19 billion. Looking at how the sub indices on the ASX200 are going, all are trading well into the red:

  • Materials - down 2.3%
  • Energy - down 2.04%
  • Industrials - down 1.87%
  • Consumer discretionary - down 1.47%
  • Consumer staples - down 1.1%
  • Financials - 1.08%

10.12am: In early trade, the All Ordinaries index is 66.9 points lower, or 1.5 per cent, to 4392.5, while the benchmark S&P/ASX200 is also 66.9 points lower, or 1.5 per cent, to 4329.1.

10.08am: Early losses now 1.1 per cent. Not all companies trading yet.

10.05am: Early take - shares have lost 0.8 per cent as the market opens. How low will they go?

9.55am: Latest figures show Australian building activity has continued to slide, due to weak demand and lower workloads.

The Australian Industry Group-Housing Industry Association’s performance of construction index fell 1.3 points to 34.9 in April. A reading below 50 indicates a contraction in activity and it means the index has been in contraction for 22 months.

The figures show most of the weakness is due to a sharp drop in apartment building activity, but house building is also weak.

9.51am: We've got a busy day of economics releases ahead:

  • Australian Industry Group/Housing Industry Association performance of construction index (PCI) for April - more on this in a moment
  • Australian Bureau of Statistics (ABS) retail trade data for March
  • ABS building approvals for March
  • ANZ job ads for April
  • NAB business survey for April

9.48am: Where does that place markets today? IG Markets analyst Stan Shamu said he believed shares would fall as much as 1.8 per cent.

"This basically erases all of last week’s gains and leaves the market right near the support (level) from a few weeks ago," he said.

"Several traders are likely to attempt buying this market after the sharp drop we have seen from last week’s high.

He added that there was likely to be "significant volatility in today’s session as traders look to reposition themselves." 

9.44am: The US jobs news sent SPI futures down sharply, points to a loss of about 1.2 per cent at the open. The Australian dollar has also taken a battering since Friday. The Aussie dollar shed 1 US cent when trading resumed this morning, sinking to as low as $US1.0145 - its weakest point since since January 9 this year.

Robert Rennie, Westpac chief currency strategist, said he expects the dollar to test parity against the greenback soon.

“It shouldn’t be any great surprise that Hollande was going to win and the Greek elections were going to be extremely fractured,” he said.

“But we awaken Monday morning and it feels as if suddenly the financial markets have woken up and begun to realise the potential implications.”

9.41am: Meanwhile in Greece, election results have raised fresh concerns about that nation's willingness to stick to tough austerity measures as parties opposing more cuts, including neo-Nazis, won almost 60 per cent of the vote support at the polls.

9.38am: But worries are also coming from Europe where election results over the weekend threaten to undo recent progress on the eurozone debt crisis.

France has elected Francois Hollande as its first socialist president in 17 years. Mr Hollande warned that Germany would be the first nation to be told that Europe must put growth, employment and prosperity before austerity.

9.35am: One of the main reasons for the weak local outlook for shares today is jobs data released in the US on Friday. US markets lost 1.5 per cent on Friday on data showing employers reduced hiring for the third straight month, adding 115,000 workers in April, well below forecasts of 170,000. Traders' expectations had fallen during the week, but the softer jobs number missed even more pessimistic forecasts.

It was the third straight month in which hiring slowed, intensifying fears that the US recovery is losing momentum and opening the door a bit wider for the Federal Reserve to ease monetary policy.

"The bottom line is you don't have evidence that this economy has reached escape velocity," said Robert Tipp, an investment strategist at Prudential Fixed Income.

9.32am: Aussie shares appear to be in for a rough start to the week. We'll look at the main reasons for the negative leads in a moment. For a comprehensive look at this morning’s business news, check today’s need2know. Here are this morning’s key market links:

9.30am: Good morning folks. Welcome to the Markets Live blog for Monday.

This blog is not intended as investment advice

Contributors: Thomas Hunter, Peter Litras, Peter Hannam, Jens Meyer

BusinessDay with agencies

IG Markets analyst Stan Shamu said he believed the market would fall as much as 1.8 per cent.
‘‘This basically erases all of last week’s gains and leaves the market right near the support (level) from a few weeks ago,’’ he said.
‘‘Several traders are likely to attempt buying this market after the sharp drop we have seen from last week’s high," he said. "However, trying to pick a bottom is always a particularly risky strategy, and following the trend might just be the favoured strategy."
"There is likely to be significant volatility in today’s session as traders look to reposition themselves.’’


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