The Australian sharemarket has dropped 3% in early trade, after news that the US is officially in recession all but wiped out any gains seen on Wall Street last week.
The Australian sharemarket has dropped 3% in early trade, after news that the US is officially in recession all but wiped out any gains seen on Wall Street last week.
The Dow Jones Industrial Average plummeted 7.7% last night after the National Bureau of Economic Research revealed the US economy slipped into recession in 2007.
But the NBER does not measure a recession by two consecutive quarters of GDP decline, but rather declines in economic activity spread across the economy over a certain period of time.
“I think that we’ve got a ways to go, that this is going to be probably a deep and long recession,” NBER’s committee member Jeffrey Frankel told CNBC. “It could be the worst post-war recession. We don’t know yet.”
Meanwhile, new data shows US factory activity fell to its lowest level since 1981-82. The disappointing results are fueling speculation the Federal Reserve will cut the official interest rate by half a percentage point to 0.5% on 16 December.
In a further sign the slowdown is taking its toll, financial services firm JPMorgan says it will cut 9200 jobs at the former Washington Mutual bank. The cut accounts for more than 21% of the group’s workforce.
Fallout back home
The disappointing results brought down the Australian sharemarket. The benchmark S&P/ASX 200 index was down 102.9 points or 2.8% to 3578.3 at 12.05 AEDT. The dollar also lost ground, slipping back to $US63 cents.
BHP shares fell 7.7% to $27.60, while Westpac slipped 3.8% to $16.30. Commonwealth Bank shares also dropped 3.5% to $31.83, but Telstra managed a 2.5% rise to $4.15.
Private investment firm Transfield was the best of the day, rising 6.8% to $1.33.
Retail trade
Meanwhile, the retail sector may not be doing as badly as once thought. New Bureau of Statistics data reveals the trend estimate of turnover for the sector increased by 0.2% in October.
Food retailing recorded a 0.6% increase, while the “other” category experienced a 0.8% rise. But clothing fell by 0.2%, while cafes, restaurants and takeaway food services also fell by 0.6%. The estimate for chains and large retailers increased by 5% compared to October 2007.
All states recorded an increase except NSW, which fell by 0.2%
The figures come as retail giant Harvey Norman recorded a 0.5% increase in like-for-like sales in the 28 days to 30 November. But the rise has followed a 0.8% fall in sales in the 28 days to 16 November.
Swan urges cuts to be passed on
Ahead of this afternoon’s Reserve Bank meeting, Federal Treasurer Wayne Swan says banks should do all they can to ensure any interest rate cuts are passed on to borrowers.
The Reserve Bank is likely to cut rates for a fourth consecutive time, as it has indicated its focus is now on stimulating the economy, not battling inflation.
“Australians can take heart that there is a Federal Government and a Reserve Bank that is doing everything it possibly can to strengthen our economy, given the threat to our economy from the global financial crisis,” Swan told Parliament yesterday.
“We do expect in all of this the banks to play their role, to be part of the effort to strengthen the economy, and should there be a cut in official interest rates, to pass it on as responsibly and fully as possibly.”
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