Australian shares spiralled to a one-month low this morning as a contraction in Chinese manufacturing and Ford's exit from Australia compounded overnight stimulus panic on Wall Street.
At lunchtime the ASX 200 was 93 points or 1.8% in the red at 5072 and on track for its worst session since mid-March. A broad sell-off pushed all sectors except IT (+1.1%) lower, with the heaviest falls coming in telecoms -3%, financials -2.7%, gold -2.4%, utilities -2.2% and the Small Ords -2.1%. The dollar fell two-thirds of a cent this morning, recently buying 96.39 US cents.
The sell-off followed overnight share losses in the US where traders were spooked by a comment by Federal Reserve Chairman Ben Bernanke that the central bank may start to wind back its bond buying program within a few months.
Adding to the pressure was news this morning that Ford will abandon manufacturing in Australia after almost 90 years and that Chinese manufacturing weakened this month. Ford said it will cease making cars in Australia in 2016, citing high production costs compared to Europe and Asia. HSBC's "flash" Chinese manufacturing purchasing managers' index for May came in at 49.6, down from 50.4 last month and below the critical 50-point level that separates contraction from expansion for the first time in seven months.
"The cooling manufacturing activities in May reflected slower domestic demand and ongoing external headwinds," the chief China economist at HSBC told Reuters. "A sequential slowdown is likely in the middle of the second quarter, casting downside risks to China's fragile growth recovery."
Most Asian markets fell back, but Japanese shares rallied as exporters benefitted from a weaker yen. The Nikkei was lately up 0.29%, Shanghai down 0.58%, Hong Kong's Hang Seng off 1.69%. Dow futures were recently 18 points or more than 0.1% weaker.
Crude oil futures slumped 50 cents this morning to US$93.60 a barrel. Spot gold was $2.50 weaker at US$1,365.60 an ounce.
Ouch. Perfect storm for the Australian market. Plenty of opportunities to lose money this morning, so I hope we've all kept our shirts? The XSO has given up nearly all of its April-May bounce. Someone has gone after the telecoms big time. May just be the repatriation of overseas funds as the collapse in the dollar corrodes profits for international buyers. I had a couple of swings at IIN and bought low enough second time to dump the lot at a fair profit. Also more than made back yesterday's modest loss in ISN and traded disappointing bounces in ROC and RCR. Holding SGP and MYR for any improvement in market sentiment this arvo. Tight stops.
