Market sinks below 5000 points: Economy roundup

The Australian sharemarket has today fallen below the psychologically significant 5000 point barrier for the first time since September 2006.

The Australian sharemarket has today fallen below the psychologically significant 5000 point barrier for the first time since September 2006.

The S&P/ASX200 plunged below the 5000 point mark shortly after trading opened this morning and, despite emerging signs of a recovery, remains down 2% on yesterday’s close to 4991.8 at 12.15pm.

Falling coal prices on international markets has been a key factor in today’s falls, with Rio Tinto and BHP Billiton shares both falling more than 5% over the morning.

But underpinning the weak sharemarket performance are ongoing concerns about the weak US economy.

The benchmark US Dow Jones Index fell 1.46% last night to 11,215.51, with the country’s weak housing market and worries about spiralling oil prices the biggest issues.

The likelihood of oil prices remaining high for some time to come was confirmed yesterday by an International Energy Agency report that forecast tight oil market conditions for the next five years.

But it is fate of that other black gold, coffee, that has captured business headlines this week with the news that coffee super chain Starbucks plans to close 600 outlets across the US.

About 12,000 employees will be affected by the closures, which is a reflection of weakening consumer demand over the past 18 months.

And talking of consumer wobbles, new economic data out today suggests Australia’s services sector is beginning to struggle as higher interest rates and fuel prices take their toll.

The Australian Industry Group-Commonwealth Bank Performance of Services Index fell 4.3 points to 45.4 in June, well below the key 50 level separating expansion from contraction.

“The rising price of oil and high interest rates have significantly dented consumer and business confidence with little prospect of a reprieve in sight,” AiG chief executive Heather Ridout says. “These strong pressures on household budgets saw consumers slash spending on discretionary services such as accommodation, cafes and restaurants, and personal and recreational services in June.”

But there was good news in new balance of payment’s figures released today, with Australia coming close to recording its first trade surplus since 2002.

The balance of trade on goods and services was in deficit by $965 million seasonally adjusted in May 2008, down $977 million from April.

ANZ economist Riki Polygenis argues we may actually have been in surplus. “Given that Rio Tinto has settled for an 85% price rise, there will be large upward revisions to export values in coming months. We may find that Australia did actually achieve a trade surplus in May,” she says.