australian stocks and currency hit by global meltdowns in oil and ruble 904082014

Minutes of the last meeting of the RBA held on December 2, released yesterday, showed that the members found little justification to change their monetary stance, even though markets appear to be pricing in interest rate cuts next year. "Members noted that the current accommodative setting of monetary policy was expected to support demand and help growth strengthen at the same time as delivering inflation outcomes consistent with the target over the next two years," the minutes said, according to Dow Jones Newswires.

However, according to the OECD, the chances of a rate cut next year have increased, though Australia is unlikely to face a recession. “In many ways this adjustment in the commodity market is something that has been expected, but it is the speed and depth that is catching people out,” said Phil Hemmings, senior economist, commenting on the OECD’s biennial economic survey of Australia.

The Russian central bank announced a massive hike of 650 basis points in the benchmark interest rate in a desperate attempt to shore up the ruble after the US Congress authorised tougher sanctions against Russia. The move only served to create panic across the country’s financial markets, said the Financial Review, and sent the ruble into yet another free fall.

Columnist Alan Kohler at the Business Spectator said there were lessons for Australia in Russia’s pain, considering both countries’ reliance on resources such as oil in the case of Russia, and iron ore and coal for Australia. “Be careful what you wish for,” he said, referring to the RBA’s constant lament that the Aussie needed to fall. “The Reserve Bank of Australia is the householder doing a nervous little burn-off in the backyard on a hot day while, in the distance, a neighbour’s house goes up in flames,” he warned. The ruble has fallen over 50 per cent this year.

The dour sentiment following the plunge in the ruble affected the Australian dollar too, said The Australian. At 07:00 (AEDT), the Aussie was trading lower at 82.10 cents compared to 82.31 cents on Tuesday. The Aussie was also under pressure following the release of the worst Chinese production data in six months. The Federal Reserve will conclude its two-day meeting today, the last one for 2014, and the markets will be on watch for its stance on interest rates.

January US crude fell to $53.60 a barrel, a five-and-half-year low. Worries about the likely ‘contagion’ from the crash in oil prices sent global investors scurrying to the safety of US Treasuries, sending the 30-year yield to 2.670 per cent, the lowest seen in over two years, according to The Sydney Morning Herald.

Falling oil prices led to the sixth straight losing session for the ASX yesterday. The S&P/ASX200 ended lower by 33.8 points, or 0.70 per cent, at 5,152.3, while the All Ordinaries index lost 0.70 per cent to end at 5,131. The Energy sector was the biggest loser at 2.08 per cent followed by Materials which fell 1.93 per cent, while Utilities gained 0.59 per cent.

In the Energy sector, Oil Search Limited (ASX:OSH) fell 2.75 per cent to AU$7.06, Woodside Petroleum Limited (ASX:WPL) lost 2.63 per cent at AU$34.46 and Santos Ltd (ASX:STO) declined 2.55 per cent to AU$7.27.

Iron ore continued its bearish trend, falling for an eighth straight trading day. Iron ore for spot delivery at Tianjin, China was trading at US$68.10 per tonne, down 0.7 per cent from its previous close of US$68.60 per tonne and within kissing distance of the recent five-year low of US$68 a tonne, said The Australian. With the exception of Atlas Iron, which gained 7.4 per cent, mining companies ended in the red. BHP Billiton Limited (ASX:BHP) closed down 3.2 per cent at AU$27.42, Rio Tinto Limited (ASX:RIO) fell 1.6 per cent to AU$52.65, Fortescue Metals Group Limited (ASX:FMG) lost 3.6 per cent and closed at AU$2.39.

Airlines gained in the context of the favourable impact of falling oil prices. Qantas Airways Limited (ASX:QAN) closed higher at AU$2.35, up 3.52 per cent and Virgin Australia Holdings Ltd (ASX:VAH) gained 1.19 per cent at AU$0.425.

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