The Aussie market suffered its steepest drop since the height of the GFC last week, with the panic-selling driven by fears the US economy is sliding back into recession.

The RBA’s decision to leave interest rates unchanged had little impact on sentiment, whilst this weekend’s US debt downgrade is likely to cause even further volatility in the market.

The ASX 200 plunged 319 points (-7.2%), closing at 4105.4.

Mining companies bore the brunt of last week’s selling amid fears a global recession will sap commodity demand.

BHP Billiton (ASX:BHP) lost 8%, whilst Rio Tinto (ASX:RIO) fell 10% despite its 1H11 net profit growing 30% from the prior year.

A huge fall in crude prices weighed heavily on the energy sector.  Woodside Petroleum (ASX:WPL) and Santos (ASX:STO) tumbled around 10% each.

The big banks were also caught up in the sell-off, with National Australia Bank (ASX:NAB) shedding 9.3% and Commonwealth Bank (ASX:CBA) dropping 6.1%.

Toll road operator, Transurban (ASX:TCL), didn’t fare as badly after reporting a surge in its full year profit.  TCL shares slipped 2.7% for the week.

Economic News. What Does it Mean?

A raft of poor global economic data was the catalyst for last week’s heavy fall on the stock market.  However, signs of a weakening domestic economy also weighed on sentiment.

The big event last week was the RBA’s decision to leave the official cash rate unchanged at 4.75%.

The decision was delivered against the backdrop of global market uncertainty, which the RBA admitted had the potential to derail the domestic economy.

The central bank noted that asset prices had softened in recent months and consumer demand was likely to remain weak in the near term.

As a result, the RBA slashed its 2011 Australian economic growth forecast from 3.25%, to 2%, when it released its June quarter monetary policy statement.

Sapping confidence further was Australian retail sales, which unexpectedly declined 0.1% in June. Economists were expecting a rise of 0.3% for the month.

The poor result was a clear reflection of consumers tightening their belts amid global uncertainty and the threat of further interest rate hikes.

Separately Australia’s trade surplus narrowed to $2.05 billion in June, from a revised $2.7 billion in May.  Exports were flat in June – no doubt hurt by the strong Aussie dollar – whilst imports rose 3%.

The market is now nervously eyeing this Thursday’s domestic jobs report, where the expectation is for the economy to have added 10,300 jobs in July.

However, a worse-than-expected result could shake confidence in the Australian economy and may add to calls for the RBA to lower the official cash rate.

Overseas Market and Commodity Wrap

Last week’s rout on global markets was the biggest since the height of the GFC, with investors panicked over sovereign debt problems and the sickly US economy.

A last-minute agreement to raise the US debt ceiling failed to lift the market’s mood, as attention turned to a raft of weak global manufacturing data and a surprise contraction in June US consumer spending.

All of the major US indices were punished, with the Nasdaq headlining the losses (-8.1%).  The Dow shed 5.7% for the week, whilst the S&P500 fell 7.2%.

In Europe, the losses were more pronounced; the FTSE (-9.8%), German DAX (-12.9%) and French CAC (-10.7%) plunged amid concerns the EU will be unable to contain the region’s debt crisis.

Asian markets were also battered, although the Shanghai Composite escaped the brunt of the selling, down just 2.8% for the week.

The US dollar rallied against its major rivals, with investors lured by its safe-haven appeal.  The safe-haven buying supported gold, which rose another 1.3% to a new all-time high.

Oil was tanked 9.2% to below US$90 a barrel amid concerns over energy demand, whilst base metals were also sold down heavily, with zinc down 11.6%.

   Written by: marketpulse   Other posts from: marketpulse