Australian stocks reversed yesterday's gains after retail sales declined, China ruled out large-scale stimulus plans and a Spanish clash with the European Central Bank underlined strains in Europe.
At lunchtime the ASX 200 was down 37 points or 0.9% at 4076 and on track for its first loss of the week. Defensive sectors generally outperformed cyclicals, but the retreat dragged all sectors lower. Worst hit were gold stocks -3.1%, energy 1.5%, metals & mining -1.4% and materials -1.4%.
A modest recovery in the XJO was stifled by the 11.30am EST release of retail data that showed turnover decreased last month for the first time this year. Sales declined by 0.2%. The dollar fell to 97.93 US cents as forex traders bet that the retail data increased the likelihood of rate cuts in the months ahead. A separate report showed a 5.5% rebound in construction work last quarter.
Asian markets fell after China warned that there would be no GFC-style stimulus program and the European Central Bank rejected Spain's plan to recapitalise the troubled Bankia. Japan's Nikkei dropped 0.98%, Shanghai 0.18% and Hong Kong's Hang Seng 2.14%. Dow futures were recently down 55 points or more than 0.4%.
"The Chinese government's intention is very clear: it will not roll out another massive stimulus plan to seek high economic growth," the official Chinese Xinhua news agency said in an article quoted on Bloomberg. "The current efforts for stabilising growth will not repeat the old way of three years ago."
Crude oil futures slumped 56 cents this morning to US$90.32 a barrel. Spot gold was $8.30 softer at US$1,548.10 an ounce.
If all world markets saw last night was the good news, they certainly got back in touch with the bad this morning. There has been a significant sell-off in risk assets - oil, gold, Australian dollar, Asian equities, US futures, etc. As Poly suggested, China is the real dampener. I'm not sure anyone anticipated a full GFC-style stimulus program but they're certainly lowering expectations. This morning's sell-off in goldies looked overdone and I squeezed a few points out of SBM and MML. Like others here, took profits on PEK but it's top of the watchlist for another buy on the next pullback. SVW appeared a fairly safe buy at support and it's starting to come good.
