Stocks in $25b sell-off

That’s it for Markets Live today.

You can read a wrap-up of the action on the markets here.

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See you all again tomorrow morning from 9.

shares down

More than $25 billion was wiped off the value of the Australian market on Monday as shares suffered their biggest daily fall since August.

But the dive was accompanied by a big jump in the value of the Australian dollar, which soared above US88c after the Reserve Bank of Australia announced it was keeping the official cash rate on hold.

The local slump came after disappointing United States manufacturing data sent Wall Street tumbling overnight. Japanese shares also extended their hefty sell-off

The local market continued to decline after the Reserve Bank of Australia kept the official interest rate at its record low as hopes for future cuts were dashed, boosting the local dollar.

The benchmark S&P/ASX 200 Index lost 90.8 points, or 1.8 per cent, on Tuesday to 5097.1, while the broader All Ordinaries Index fell 1.7 per cent to 5114.1, wiping more than $26 billion off the market’s value.

The soft US economic data sparked global worries that recent signs of a recovery in the US economy may have been premature. This came amid lingering concerns about how global markets will respond to reduced liquidity as the US Federal Reserve continues tapering its stimulus.

On Monday all three major equity markets in the US declined more than 2 per cent. A 3.5 per cent fall in Japan’s Nikkei added to the selling pressure in the afternoon.

Professional investors said equities could be headed for a correction.

“Markets were priced for perfection and things don’t go perfectly when central banks start removing stimulus,” Perpetual head of investment research Matthew Sherwood said.

Read more.

analysis

Turning to the best and worst for the day, REA Group was top of the pops after its interim profit results, showing that a good report can trump the negative mood in markets. The online classifieds business jumped 5 per cent.

Gold miner Newcrest was next best, jumping 4.7 per cent, followed a bunch of other mid-cap resource stocks.

Among the worst of the day (and there were plenty to choose from - 170 stocks finished down, 22 up and 8 were unchanged), Acrux plunged 10.3 per cent before entering into a trading halt to give it a chance to explain reports around the health implications of testosterone replacement therapy.

Energy World Corp fell 9.7 per cent, while Ten Network gave up some of its recent gains, down 5.4 per cent.

Karoon Gas is now plumbing market lows, while Flight Centre dropped 4.8 per cent.

The best and worst performer on the ASX 200 today.
The best and worst performer on the ASX 200 today. 
analysis

Turning to the best and worst for the day, REA Group was top of the pops after its interim profit results, showing that a good report can trump the negative mood in markets. The online classifieds business jumped 5 per cent.

Gold miner Newcrest was next best, jumping 4.7 per cent, followed a bunch of other mid-cap resource stocks.

Among the worst of the day (and there were plenty to choose from - 170 stocks finished down, 22 up and 8 were unchanged), Acrux plunged 10.3 per cent before entering into a trading halt to give it a chance to explain reports around the health implications of testosterone replacement therapy.

Energy World Corp fell 9.7 per cent, while Ten Network gave up some of its recent gains, down 5.4 per cent.

Karoon Gas is now plumbing market lows, while Flight Centre dropped 4.8 per cent.

 

analysis

Sentiment continues to deteriorate in equities land, with Japan once again at the heart of the moves lower, IG's Chris Weston notes:

  • The market feels like it’s been hit by a freight train and traders are asking what exactly is going on. What started out as a profit taking exercise has steamrolled into something far more substantial, with trend-breaks seen in a number of asset classes and 200-day moving averages either being broken or about to be tested.
  • Naturally we need to see these averages head lower (at the moment they are still heading up) to define a new trend, but they are lagging indicators and the fast money would have already sold, or would be adding to bearish positions on these breaks.
  • The story has shifted from a predominantly emerging markets narrative, to one of disinflation risks and growth concerns in developed markets, therefor you are going to see this space struggle.
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market close

Well, wrap it up and put a bow on it - the local sharemarket has finished a dismal day, with the ASX 200 down 90.8 points, or 1.8 per cent, to 5097.1. The All Ords fell 1.7 per cent to 5114.1.

Worst performing corners were information technology, down 2.3 per cent and materials, down 2.2 per cent. Financials (excluding listed property trusts) also bore the brunt of the sell-off, down 2 per cent.

Gold stocks, however, are proving their worth on the dog days. The sector was up 2.6 per cent.

LPTs were only down 0.2 per cent, and utilities recorded losses of 1 per cent.

BHP was the biggest single drag on the market, as the stock lost 2.6 per cent, followed by the big four banks and Telstra.

Newcrest Mining, up 4.7 per cent, was the biggest booster, followed by REA Group, which was up 5 per cent.

japan

Losses haven't only accelerated on the local market, Japanese shares are being wiped out today.

The Nikkei is down 3.6 per cent and the broader Topix has lost 4.3 per cent, taking their 2014 losses to 13 and 12 per cent respectively.

‘‘Very few would have predicted a fall of above 10 per cent in the first month of this year, but given the excellent run into year-end and the large move in 2013, a pullback was widely spoken about,’’ says Stuart Beavis, head of institutional equity derivatives at Vantage Capital Markets in Hong Kong.

‘‘Until now, this year has been dominated by opportunistic plays rather than long-term investments. The lower we go, the more funds will look for long-term core investments.’’

shares down

Here are the companies that have hit 52-week share price highs and lows today, with more of the latter than the former.

Hitting highs:

  • REA Group traded as high as $44.03, last $43.65

Hitting lows:

  • Coca-Cola Amatil, as low as $11.38, last $11.46
  • Karoon Gas, as low as $3.06, last $3.08
  • AMP, as low as $4.11, last $4.13
  • ALS, as low as $7.63, last $7.72
  • Tatts Group, as low as $2.90, last $2.91
  • Treasury Wine Estates, as low as $3.42, last $3.52
  • Metcash, as low as $2.96, last $2.98 
gold

Gold has held onto most of its overnight gains as regional equities slump and investors worry over US economic growth after disappointing manufacturing data.

Spot gold is down 0.1 per cent at $US1256 an ounce, after gaining 1.1 per cent overnight, and 4 per cent since the beginning of the year.

Equities have come under pressure this year due to slowing growth in China and capital outflows from emerging nations where the US Federal Reserve's stimulus tapering is taking a toll. Gold is gaining as it is often seen as an alternative investment to stocks and other risky assets.

"Turmoil in emerging markets, due to the Fed's reduction of tapering, is causing some investors to become risk-off so they are looking to gold which has regained its status as a safe-haven asset," said Danny Laidler, head of Australia & New Zealand operations at ETF Securities.

ASX

Losses have accelerated this afternoon and if the market closes at its current level, today will be the worst session in 2014, and the biggest loss for the ASX200 since August 7.

Previously, the benchmark index had its worst day of the year on January 14, when it lost 1.5 per cent. It's lost more than 1 per cent on four occasion this year.

But the local market is still faring better than Wall Street, where the Dow Jones slumped more than 2 per cent overnight, and is down 7.3 per cent since the beginning of the year, easily underperforming the 4.7 per cent loss on the local market.

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trading halt

Acrux has gone into a trading halt, and is expected to release a statement to the market soon rejecting concerns outlined in an analyst report earlier today over the US regulator, the FDA responding to health issues over testosterone replacement therapies (TRTs).

The Acrux statement is expected to state there is nothing new in the move by the FDA, and that the labeling of the Acrux drug in this space, Axiron, already carries warnings.

Acrux shares have slumped 10 per cent on an analyst report over the FDA looking into links between TRT and the incidence of strokes, heart disease and death.

shares down

We mentioned below that fund manager Wellington has become a significant shareholder in Treasury Wine Estates.

But now the AFR reports that one of Australia’s higher profile analysts has warned that poor corporate governance at a company almost always results in returns to shareholders becoming severely compromised, with both David Jones and Treasury Wine Estates sounding alarm bells.

David Errington, an analyst with Bank of America/Merrill Lynch, says in a note on Tuesday that when good corporate governance breaks down, it invariably leads to a poor outcome for shareholders.

He says in the past week he has questioned the governance at two companies, Treasury Wine Estates and David Jones.

Separately, at a media briefing today, veteran fund manager Vince Pezzullo at Perpetual told journalists something to the effect of "Treasury is an absolute howler... that's issues with management".

Treasury has now lost almost a quarter of its market cap over the past few days.

Value or value trap?

 

 

quote

Here are a few economist reactions to the RBA's decision. As mentioned earlier, consensus is the bank has turned more hawkish, indicating that the next rate move will be up (but that's probably not for a while).

Divya Devesh, foreign-exchange analyst at Standard Chartered

If you look at the RBA statement, that is much less dovish than the previous statement. They have dropped the reference to the exchange rate being uncomfortably high, so that’s definitely more hawkish. While earlier they were keeping the door open on more easing, now they are trying to say it’s the end of the current easing cycle. We’ve seen the Aussie rally on back of that.

Michael Blythe, chief economist at CBA

They sounded a bit more confident on growth, a bit less confident on inflation and took a bit of stab at forward guidance. The growth transition is underway and there is perhaps a bit more of an upside risk to inflation, so certainly the easing bias is gone and we think they'll be looking at rate rises by the end of this year.

Michael Turner, RBC Capital Markets strategist

They're back to a neutral bias, their statements have been neutral for the past couple of months, but in light of the minutes and their forecasts they have brought an easing bias, but that's pretty much gone from the language.

In this statement they don't express too much concern over the exchange rate, inflation's a bit higher, which gives the whole thing a reasonably less dovish tinge when you follow it up with the final sentence, where they say they think they're done for a period of stability. That probably means they think they're done unless the world falls apart.

Hans Kunnen, St George chief economist

It was quite positive on the global scene, which is a good backdrop, whilst acknowledging the emerging markets. Their comments on inflation were expected, but it doesn't seem to be a cause for concern from them.

And they had an extra comment on domestic cost remaining contained, so I think they see that as an important thing that non-traded goods must remain constrained in terms of price growth.

It's hard to find that they have an easing bias, so have they taken it out? Not entirely. But the statement doesn't read as if there is an easing bias.

The emerging markets thing will blow over this year, and they will keep an eye on that, but they haven't said they won't cut interest rates, they just said most likely they will be stable. So they haven't ruled the cut out.

NZ

It wasn't long ago when punters were talking parity for the Aussie dollar - against the New Zealand kiwi. That threshold has moved even further into the distance after the RBA's decision.

The Aussie jumped nearly a cent against the kiwi, outpacing its gains against the dollar, and is currently trading above $NZ1.09.

The Aussie has spiked against the Kiwi as the RBA drops its easing bias.
The Aussie has spiked against the Kiwi as the RBA drops its easing bias. 

Consensus among the Twitterati is that the big news coming from the RBA today is that they cut the more dovish language and moved to a neutral stance on rate, dropping the easing bias. That's not a huge surprise but there'll now be more focus on the timing of the first rate hike.

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housing

This is a nice line from the RBA's statement for those holding stocks exposed to the building sector, or thinking about investing:

In Australia, information becoming available over the summer suggests slightly firmer consumer demand and foreshadows a solid expansion in housing construction.

quote

Here are some of the more interesting parts of the RBA's statement, in which it specifically mentions the emerging markets situation and flags stable rates for some time:

The United States economy continues its expansion and the euro area has begun a recovery from recession, albeit a fragile one. Japan has recorded a significant pick-up in growth, while China's growth remains in line with policymakers' objectives. Commodity prices have declined from their peaks but in historical terms remain high.

...for some emerging market countries conditions are considerably more challenging than they were a year ago.

Looking ahead, the Bank expects growth to remain below trend for a time yet and unemployment to rise further before it peaks. Beyond the short term, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate. Inflation is expected to be somewhat higher than forecast three months ago, but still consistent with the 2–3 per cent target over the next two years.

In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates.

dollar

Ok, looks like traders had a closer look at the RBA statement and noticed that the central bank has dropped the sentence jawboning the dollar. They also seem to have turned more neutral, dropping their easing bias.

The dollar has extended gains and is now up nearly half a cent at 88.37 US cents.

The Aussie dollar has had a bit of a boost from the RBA decision to keep rates on hold.
The Aussie dollar has had a bit of a boost from the RBA decision to keep rates on hold. 
Rates

No change to rates - the RBA has chosen not to surprise anyone with its decision. The dollar still rose a bit, about 0.2 of a cent.

More to come

exec

Former federal Liberal treasurer Peter Costello has been appointed head of the Future Fund.

Costello, who was treasurer for more than 11 years in the Howard government (1996-2007), has been acting chairman of the fund since January 11 following the resignation of David Gonski to become chairman of ANZ Bank.

As treasurer he was responsible for the establishment of the Future Fund in 2006.

‘‘Mr Costello’s unique experiences and background at the most senior levels in government and in business will be a great asset to the Future Fund board,’’ Treasurer Joe Hockey and Finance Minister Mathias Cormann said in a joint statement.

Now officially the head of the Future Fund ... Peter Costello
Now officially the head of the Future Fund ... Peter Costello Photo: James Davies
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