A third day of selling pushed the share market to a seven-week low this morning as investors pared bets on another rate cut by dumping yield stocks.
At lunchtime the ASX 200 was down 80 points or 1.4% at 5758 after earlier marking its lowest point since March 11 at 5750. This morning's slump followed a severe sell-off on Europe and weakness on Wall Street overnight. Germany's DAX, one of this year's best-performing markets, suffered its heaviest loss in seven years.
The financials sector bore the brunt of this morning's sell-off in Australia, plunging 2.2% to its lowest level since early February. Other sectors formerly seen as attractive for their yields relative to low bank interest rates also took a bath, property trusts declining 1.9% and telecoms 1.8%.
"The shedding of the banks yesterday was a glaring reminder that earnings are looking strained even in the banks," IG's Evan Lucas told Fairfax. "Preview after preview from the investment banks are seeing earnings downgrades for the retail banks that are reporting next week. The collapse of the yield trade on falling expectations of a rate cut on Tuesday is just adding to slide in the fully valued banks.
"I can't see the ASX legging higher in the next three weeks unless the RBA cuts rates, the federal budget is more conducive of growth and the banks report earnings growth well above expectations – a tough ask to get all three. There is nothing wrong with a healthy pull back and maybe I am being overly cynical but the signs are growing for the ASX to ease after rocketing up 7.8 per cent year-to-date."
The global retreated from equities rippled through all major Asian markets except China, where the Shanghai Composite was last up 0.17%. Hong Kong's Hang Seng fell 0.75% and Japan's Nikkei 1.92%. Dow futures were recently seven points or less than 0.1% lower.
Crude oil futures edged up another six cents this morning to US$58.64 a barrel. Spot gold improved 30 cents to US$1,204.50 an ounce. The dollar was buying 79.96 US cents.
Troubling times for investors. The XJO "ought" to have bounced this morning if the current trading range was intact and for a time looked like it would. Then it rolled over again. In other words, this is not the sort of run-of-the-mill retrace we have become used to over the last two months. A few support lines are creaking this morning, if not disintegrating. Three-day losing runs have been rare lately and the index has not fallen for four sessions since early February, so tomorrow looks like being very interesting. Trading: I figured yesterday's fall was heavy enough to pre-empt most overseas weakness and so held a few shares overnight. Yeah, I've had better ideas. Doubled down on IPL and got out of that profitably, but ALL remains a thorn. AZK was always going to do its own thing - sold the opening bounce, then bought again below 25c. Looking good for two from two. AMM was good for ten pips. Also took FMG on the plunge.
