The Australian sharemarket has plummeted a further 2.75% this morning to an eight-month low after the Dow Jones suffered a disastrous 900-point fall in the US, with investors still nervous about how debt problems in Greece will affect the global economy.
While the Dow managed to regain some of its losses, with the majority of fall blamed on a trading error at Citibank, the US index still fell 3% with Australian markets now feeling those losses today.
The benchmark S&P/ASX200 index was down 104 points or 2.29% to 4468.6 at 11.50 AEST, while the Australian dollar has also fallen to US88c.
Australian investors and businesses are worried that Greece’s debt problems could extend through global financial markets, even though the IMF and European Union have struck a $US140 billion bailout plan.
There are fears the country could default on its debt, threatening Australia’s strong recovery and an extremely weak upswing in American economic indicators.
NAB shares have plummeted 3.6% to $24.94, as Commonwealth Bank shares lost 3.7% to $53.12 ANZ lost 3% to $21.77 as Westpac lost 4.3% to $24.03.
In the United States, the Dow Jones Industrial Average plummeted 900 points or nearly 9% on news that a sale of Procter & Gamble shares was actually worth billions of dollars. However, it has emerged the trade was an error, and the Dow recovered to be down 3%.
The Reserve Bank of Australia has indicated in its Quarterly Monetary Policy update that pressure will remain on interest rates over the next few years as underlying inflation lies towards the upper-end of its 2-3% target.
The statement says CPI inflation will reach 3.25% by December this year, and is expected to swing between 2.75-3% until December 2012. Underlying inflation is set to reach 3.25% by next month, with 2.75% expected by the end of the year.
Additionally, GDP growth is set to be 2.7% by next month, with just 2.5% expected over the year to the December quarter. About 3.25% growth is expected in the year to the June 2011 quarter, and 3.75% is expected for the year to December quarter 2011.
“Inflation for a range of non-tradable items is expected to remain firm, and the dampening influence of the exchange rate appreciation on inflation for tradable items is also likely to wane through the forecast period.”
“While the central forecast is for GDP growth in 2011 and 2012 to be above its longer-run average rate, this partly reflects the forecast above-average growth in the capital stock and the labour force. Nevertheless, the labour market is expected to tighten gradually over the forecast period, with solid employment growth and a gradual fall in the unemployment rate.”
Construction industry activity expands during April
Activity in the construction industry has expanded for a second consecutive month during April, according to the latest figures from the Australian Industry Group-Housing Industry Association performance of construction index.
The index rose by 4.8 points in April to a seasonally adjusted 55.8 points, well above the 50-point level separating expansion from contraction.
“The house building sub-sector has now been in positive territory for nine consecutive months,” AIG director public policy Peter Burn said in a statement.
“It will need to continue to grow, together with strong demand and to catch up on the shortage of supply that has helped push up prices… This will be a challenge in the face of recent interest rate rises.”
“While new orders are expanding, businesses will be keen to see further positive news in this area over coming months.”
Mining giant Rio Tinto has said it would like to play a “constructive” role in reforming mining taxes, in response to the Government’s intention to launch a 40% tax on super profits of miners to fund massive tax reform.
“We are not opposed to tax reform, but instead support genuine tax reform that protects against sovereign risk, improves the competitiveness of the resources sector as an investment destination and promotes economic growth,” the company said in a statement. “The proposed super tax does quite the opposite.”
“We are concerned about the inclusion of existing operations and the apparently arbitrary way the new resources tax was set at 40%,” Rio managing director for Australia, David Peever, said in a statement.
WorleyParsons maintains 2010 profit guidance
WorleyParsons has maintained profit guidance for the 2010 financial year, saying it expects strong growth in the second half of 2010. The company expects net profit after tax to be in the range of $280-320 million.
“We are encouraged by increasing activity in a number of regions and customer sector groups supporting our view of a more significant weighting of earnings in the second half of the financial year,” WorleyParsons said in a statement.
“The company is confident that its medium-term and long-term prospects remain positive based on its competitive position and strong financial capacity.”
In Tokyo, JFE Steel Corp has said it is considering investing up to 200 billion yen, or $AU2.55 billion, over the next three to four years for concession rights for coal and iron ore mines in several countries including Australia.
“We don’t have specific investment plans. But considering our investments in the past, the size of any new investments is likely to total 150 billion yen to 200 billion yen,” a company spokesperson has said in a statement.
Back in the United States, the Senate has rejected a new proposal that would see up to six of the largest banks in the country split in order to ensure that any financial failure would not threaten the overall economy. The measure failed 33-61.
European stocks have closed at a 10-week low on fears due to Greece’s debt issues, with banks worried about the country’s overall financial viability and the effect another crisis would have on the already volatile European Union.
The FTSEurofirst 300 index closed 1.6% lower to 1,006.66 points – the lowest closing point since 26 February.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
