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Shares slump as global meltdown hits home

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Shares slump as global meltdown hits home

By staff writers

Article from: NEWS.com.au 

September 16, 2008 04:54pm

  

THE share market dropped almost 2 per cent today amid more turmoil in US financial markets after Wall Street dropped to its lowest close since the September 2001 terrorist attacks.

A late rally among major banks and gains in resources stocks kept the local damage from the fall out from the Lehman Brothers collapse to a minimum.

At the close today, the benchmark S&P/ASX200 index was down 66.9 points, or 1.39 per cent at 4750.8, while the broader All Ordinaries lost 75.2 points, or 1.54 per cent to 4799.8.

CMC Markets senior dealer James Foulsham said the losses were not as bad as expected following a negative lead on Wall Street but the combined losses of the past two days were significant.

“The pain has been spread over two days in the Aussie market, we copped a pretty big hit yesterday because we are a day ahead and the Lehman’s announcement had already come out,” he said.

“It’s not quite as bad as people expected (today), but if you look at it over two days it’s pretty large money.”

“By the way the last government got us through Sept 11 and the Asian economic crisis all OK???????” Fabio, you poor boy. September 11 was a temporary dip in the market – what did the last govt do to get us through? Wait for the correction in the US market. Thats it. DItto for the Asian crisis – that took longer to recover but we’re not as reliant on the Asian markets as we are on the US’, so we were never in trouble. Wake up to yourself!

(Read More)

Steely Dan of Brisbane

There may be a slight recovery in US stocks tonight but more pain is set to be felt, Mr Foulsham said.

“We might see a slight short-term bounce, but there’s still a lot of people who think we’re only scratching the surface at this stage.”

The local market was weaker from the opening after the Dow Jones Industrial Average tumbled 4.42 per cent to 10,917.51, its largest point loss since reopening after the September 2001 terrorist attacks.

Locally, most banks said they had modest exposure to the Lehman Brothers group of companies.

Commonwealth Bank fell 28 cents to $41.70, NAB lost 92 cents, or 4.03 per cent, to $21.90, while ANZ dropped 51 cents, or 3.02 per cent, to $16.36.

Westpac gained 11 cents, or 0.48 per cent to $23.26 and its takeover target St George Bank shed 24 cents, or 0.79 per cent to $30.10.

Macquarie Group fell $2.66, or 6.74 per cent, to $36.80, while Babcock and Brown plunged 53 cents, or 33.54 per cent, to $1.05.

What happens next?

CMC Markets’ Joe Youssef said investors won’t know what’s in store for the rest of the week until tonight, when the US resumes trading.

“It really depends on what happens in the US tonight, once the dust settles and people have had an opportunity to have a look at the Merrill Lynch deal in more detail,” he said.

“Don’t forget we’ve got Morgan Stanley and Goldman Sachs to release their quarterly earnings this week, if they have any more cause to release additional bad news then the market will be smashed there.”

ABN Ambro Morgans Ipswich manager Tony Russell said while “it was not looking very good today,” there were better times ahead.

“Once rescue packages are introduced, the market will regain confidence.”

Panic on Wall St

US shares went into a freefall overnight as part of a global rout after a bankruptcy at Lehman Brothers stoked fears about the state of world financial markets and the global economy.

The blue-chip Dow Jones Industrial Average tumbled below 11,000 with a loss of 504.48 points, or 4.42 per cent, to 10,917.51, its largest point loss since reopening after the September 2001 terrorist attacks.

The bankruptcy of Lehman Brothers, and the sale of troubled Merrill Lynch to Bank of America for a bargain basement price came hot on the heels of a government bail-out of mortgage firms Freddie Mac and Fannie Mae, and have heightened fears for the stability of the US financial system.

NEWS.com.au takes a look at what the US crisis means for the local share market, mortgage rates, and our banks.

What happened yesterday? 

What it means for us

Any further downturn is bad news for superannuation funds, which have already plummeted this year. The average super fund has already lost 9.1 per cent since January.

This morning’s fall had NEWS.com.au readers lamenting their lost super, with one user Josh saying he’d lost more super this year than he had paid in.

“I will be working till 75 to make up this lost ground in super,” another reader said.

Prime Minister Kevin Rudd said the Australian economy remained strong, despite the deepening global financial crisis.

“We are in a period of global financial crisis, which has been running now since last year, and it has become more intense,” he said.

Mr Rudd said today the credit crunch underscored the need for Australia to maintain a strong budget surplus, as he called on the opposition to support the government’s tax changes in the Senate.

What it means for mortgages

The turmoil is likely to push up the cost of funding – meaning it will cost banks more to lend you money.

But National Australia Bank’s head of research, Peter Jolly says it could also put pressure on the Reserve Bank of Australia to keep cutting interest rates.

Mr Jolly said the RBA would want to head off a rise in mortgage rates that could result from a further increase in funding costs for banks.

“Other things being equal it would make the RBA inclined to cut the cash rate,” Mr Jolly said.

The RBA today will release the minutes of its meeting earlier this month, setting out its reasons for cutting official rates by 0.25 basis points to 7 per cent.

Financial markets are now predicting another rate cut by the RBA when its board meets on October 7 and are factoring in at least one more after that before the end of the year. CommSec equities economist Savanth Sebastian said the continuing uncertainty in financial markets was a concern.

“The question for investors is: Are the writedowns over and are insolvency concerns over for the US financial sector?

“You can’t stick your neck out and say it is because there are a lot of unknowns.”

Are our banks safe?

Federal Treasurer Wayne Swan has moved to soothe local fears, saying our banks are in good shape, despite the global turmoil.

“It remains the case that Australia’s banks are well-capitalised and well-regulated, and do not have the same problems as the US faces,” Mr Swan said.

“While our economy is not immune from international financial market turbulence, we are better placed than most countries to weather the storm.” 

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Written by Ricardo Paulo Javier

septiembre 17, 2008 a 12:04 am

Publicado en Uncategorized

2 comentarios

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