australian stocks fall as consumer sentiment dips to the lowest in three years 903702014

Despite fresh falls in iron ore and oil, mining stocks stayed firm yesterday

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By :  ,  Financial Analyst

An unexpected increase in US crude inventory caused a fresh dent in oil prices, in a continuation of the global oil glut that has crushed oil prices by over 40 per cent in the last six months. US crude for January plunged to US$60.46, the lowest since July 2009, following the release of the US Energy report, while the benchmark Brent crude fell to a low of US$63.57. The report said that inventories grew by 1.5 million barrels, whereas analysts had expected a decline. On the other hand, OPEC said oil demand in 2015 will fall to 28.9 million barrels per day from 29.4 million barrels per day in 2014, according to the Business Spectator.

The Australian dollar hit a low of 82.64 US cents yesterday, but was trading higher at 83.19 cents as at 08:36 AEDT today. The fall in oil prices is likely to impact oil revenues and punch a hole of nearly AU$900 million in Western Australia’s budget over the ensuing three years, according to The Australian. “The decline in oil prices will result in a significant reduction in Western Australia’s North West Shelf grants, although the impact of the weaker oil price will be partially offset by a lower US dollar/Australian dollar exchange rate,” a WA Treasury spokesman said. Australian employment numbers expected today are likely to show that the jobless rate will have shot higher to 6.3 per cent in November, a 12-month high.

Ivan Glasenberg, chief executive at Glencore PLC (LON:GLEN), fired a fresh salvo at the big iron ore miners such as BHP Billiton Limited (ASX:BHP), Rio Tinto Limited (ASX:RIO), and Vale SA (BVMF:VALE5), calling their decision to increase ore production a big bet that could spell the end of smaller mining companies.  “Capital misallocation, not a lack of demand, remains a key issue for the sector resulting in a clear need to differentiate by commodity,” he said, as reported by the Australian Financial Review. “We will continue our disciplined approach to capital allocation, based on the supply-demand fundamentals.”

The relentless slide in oil prices was reflected in energy shares on Wall Street with the Dow Jones Industrial Average dropping 1.51 per cent to 17,533.15, while the S&P 500 slid 1.64 per cent to 2,026.14, marking a third consecutive day of losses.

The S&P/ASX200 fell 23.7 points, or 0.5 per cent, to 5,259 while the broader All Ordinaries dipped 21.2 points, or 0.4 per cent to 5,237.10. The markets lost ground after the latest Westpac-Melbourne Institute survey showed that consumer sentiment was down to its lowest in over three years, according to The Sydney Morning Herald. The Consumer Sentiment Index fell 5.7 per cent from 96.6 in November to 91.1 in December. Market sentiment was also adversely affected by downward moves in Chinese and Greek stocks on Tuesday.

Mining stocks rose, however, despite falls in oil and iron ore. BHP Billiton Limited (ASX:BHP) was up 1.8 per cent to AU$29.39 and Rio Tinto Limited (ASX:RIO) rose 1.6 per cent to AU$56.40. Woodside Petroleum Limited (ASX:WPL) closed higher by 1.5 per cent at AU$34.90.

The S&P/ASX200 Futures points to a weak opening for stocks today. At 09:11 today (AEDT), the December futures contract was trading at 5,202.10, down 0.04 per cent.

Find up to date information on the ASX at City Index.

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