Shares skidded to their lowest level in nearly two weeks as a revival of the European debt crisis fuelled sharp declines in US futures and key Asian markets.
At lunchtime the ASX 200 was 70 points or 1.4% lower at 5049 but trading above its session low of 5031. Defensive gold +1.1% and telecoms +0.3% shares were the only sectors to resist the downtrend. Among the hardest hit were health stocks -1.9%, IT -2%, materials -1.5% and financials -1.5%.
The declines followed an EU/IMF plan announced over the weekend to tax Cypriot bank clients as part of a bailout sparked fears of bank runs in debt-beleaguered euro-zone nations.
"Equities were running very strong, particularly in the States, and I do think they are vulnerable to a correction or sell-off," Rochford Capital's Derek Mumford told Fairfax. "A lot of professional traders will be wary that a correction was due, even though the markets were making new highs. It seemed to be running ahead of what future corporate earnings could justify. It will be negative, but to what extent it's hard to say."
Emini S&P futures plunged 20 points or 1.3% this morning to 1,533 as part of a general retreat from risk assets. The dollar fell around half a cent to $US1.0358, while the euro dropped to its lowest level of the year against the greenback. Crude oil futures slumped $1.21 to US$92.24 a barrel. Gold was one of the beneficiaries of the rush to "safe havens". Spot gold was lately up $3.90 at US$1,595.20 an ounce after earlier cracking U$1,605.
Asian markets joined the retreat. Shanghai fell 0.5%, Hong Kong's Hang Seng 1.8% and Japan's Nikkei 1.4%.
In domestic economic news, personal loans eased 0.1% in January and car sales held steady in February at record levels.
Cyprus is an economic minnow that constitutes roughly 0.2% of the euro-zone economy, so it's not the bailout that has markets worried, it's the move to transfer some of the pain to bank customers with "deposit levies". Looks like a major mis-step. As PB hinted this morning, how much money will be left in Spanish and Italian bank accounts tonight after that development? If I was looking for a career change in Cyprus, Spain or Italy, I'd consider "house breaker" because mattresses are going to be stuffed with euros in the weeks to come. Markets are ripe for a pullback with the Dow at record levels and this could be reason enough. 5% would be nice to create a bit of value without damaging sentiment too much. Been a nice start to the week here with profitable entries in NVG, TIS and AYN. Also squeezed a little beer money out of AIO.
