australian stocks plunge amidst global equity sell off 903602014

National Australia Bank (ASX:NAB) is the latest Australian bank to join the developing consensus that the RBA will likely cut interest rates, as economic conditions worsen. The bank lowered its growth estimates for the Australian economy from 2.9 to 2.5 per cent during the current year and to 3.0 per cent for 2015-16. It now expects that the RBA will deliver a 25 bps interest rate cut in March next year and thereafter again in August, according to ABC.

The forex market has already been factoring in the likely reduction in interest rates – one of the causes of the decline in the Australian dollar. NAB also reported yesterday that its business confidence index fell to 1 in November from 4 in October. Not surprisingly, the Aussie fell again yesterday to a new four-and-half-year low of 82.24 cents, before correcting slightly higher. It was trading at 83.00 cents, up 0.07 per cent, at 08:10 AEDT today.

Brent crude for January plunged to as low as US$65.30 yesterday, the weakest seen since September 2009. The contagion from these plunging oil prices spilled over to other asset classes yesterday with a global equity sell-off as the market was already grappling with new found political instability in Greece, as well as the implications of sudden new restrictions imposed by regulators in Chinese debt markets.

Australian stocks followed global cues and the S&P/ASX200 lost 90 points (1.7 per cent) to close at 5282.7, while the broader market index closed similarly down 1.7 per cent at 5258.3.

The energy sector was the worst performer in the S&P/ASX200, falling over 5 per cent to 10,634.60. Santos Ltd (ASX:STO) suffered a savage sell-off and fell 7.23 per cent to AU$7.70 in the wake of an overnight credit downgrade from Standard & Poor’s, citing the severe decline in oil prices and the "sizeable" capital expenditure still needed to complete the GLNG project, as reported the ABC.

Resources companies tumbled after JPMorgan Chase & Co. (NYSE:JPM) research cut iron ore price forecasts through 2017 citing low-cost supply exceeding demand, according to Bloomberg. BHP Billiton Limited (ASX:BHP) crashed 4.05 per cent to AU$28.88, the first time the stock has traded below AU$29 in five years. Fortescue Metals Group Limited (ASX:FMG) slumped 4.14 per cent to AU$2.55 and Rio Tinto Limited (ASX:RIO) lost 2.85 per cent to AU$55.50. Shares of mining services provider Downer EDI Limited (ASX:DOW) slipped 6.11 per cent to AU$4.15 on the back of concerns about its exposure to the iron ore debacle through its AU$3 billion contract with Fortescue Metals, said The Age.

The big four banks fell too, losing between 0.5 per cent to 1.6 per cent each. As the Australian Prudential Regulation Authority (APRA) wrote yesterday to lenders, outlining further steps it plans to take to reinforce sound residential mortgage lending practices, “In the context of historically low interest rates, high levels of household debt, strong competition in the housing market and accelerating credit growth, APRA has indicated it will be further increasing the level of supervisory oversight on mortgage lending in the period ahead,” wrote APRA.

Separately, the Australian Securities & Investment Commission (ASIC) announced yesterday it will conduct surveillance into the provision of interest-only loans as part of a broader review by regulators into home lending standards. “While house prices have been experiencing growth in many parts of Australia, it remains critical that lenders are not putting consumers into unsuitable loans that could see them end up with unsustainable levels of debt,” said ASIC Deputy Chairman Peter Kell. “Compliance with responsible lending laws is a key focus for ASIC. If our review identifies lenders’ conduct has fallen short, we will take appropriate enforcement action.”

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