the asx 200 plunges 1 6 per cent on weak wall street and middle east turmoil 1212572015

Energy stocks gained following a sharp jump in the price of crude oil due to geopolitical tensions in Saudi Arabia

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By :  ,  Financial Analyst

Australian stocks took their cue from negative market action on Wall Street, as well as the sharp falls in equity markets around the globe following geopolitical turmoil in the Middle East. Saudi Arabia launched airstrikes on rebels in Yemen after the latter’s president was forced to flee the country by boat.

The S&P/ASX 200 fell sharply in the first two hours of trade, and barring a short rally that commenced around midday, continued to trade lower during the session, with banks precipitating most of the losses. It was the biggest one-day fall for stocks in over three months, and likely put paid to any chances of the S&P/ASX 200 scaling the 6,000 level in the near future.

"The losses are widespread, with all but energy plays in the red," said Chris Conway, head of research at Australian Stock Report, and quoted by the Sydney Morning Herald. "We're certainly seeing investors take profits today, following what has been a pretty strong run for the Aussie market. The bigger question however, is whether or not this is the start of a broader move lower? Or is this an opportunity to be buyers?"

Indices and sectors

The benchmark S&P/ASX 200 on Thursday fell 94.2 points, or 1.6 per cent, and closed at 5,879.1, while the broader All Ordinaries index was down 87.4 points, or 1.5 per cent, at 5,849.7.

The only sector to end higher yesterday was energy (+0.53 per cent). The main losing sectors were real estate investment trusts (-2.27 per cent), financials (-2.05 per cent), healthcare (-2.04 per cent) and industrials (-1.70 per cent).


Banks lost heavily in yesterday’s trading. Commonwealth Bank of Australia (ASX:CBA) lost 2.11 per cent to $93.84, Westpac Banking Corp (ASX:WBC) fell 2.36 per cent to $38.95, Australia and New Zealand Banking Group (ASX:ANZ) was down 2.12 per cent to $36.40 and National Australia Bank Ltd. (ASX:NAB) slipped 1.65 per cent to $38.65.

Miners put on a mixed show. BHP Billiton Limited (ASX:BHP) fell 1.06 per cent to $30.78 and Rio Tinto Limited (ASX:RIO) was down 0.58 per cent to $56.50. However, Fortescue Metals Group Limited (ASX:FMG) gained a solid 3.92 per cent to $2.12, and Atlas Iron Limited (ASX:AGO) jumped 3.45 per cent to $0.150. Rio Tinto’s chief Sam Walsh responded sharply to recent comments by Fortescue chairman Andrew Forrest calling for the larger miners to cap their production of iron ore in order to boost prices. Mr. Walsh termed the proposal as “harebrained” and “absolute nonsense,” according to the Sydney Morning Herald. The China Iron and Steel Association’s deputy secretary Li Xinchuang said: "If Australia controls [exports], maybe other countries like Brazil will come in very quickly. I don't think it can work."

Energy stocks benefited from the rise in crude oil after Saudi Arabia launched airstrikes on rebels in neighbouring Yemen. Woodside Petroleum Limited (ASX:WPL) was up 0.48 per cent to $35.27, Santos Ltd (ASX:STO) shot up 2.86 per cent to $7.55 and Oil Search Limited (ASX:OSH) gained 1.05 per cent to $7.68. However, Origin Energy Ltd (ASX:ORG) shed 1.02 per cent to $11.65. Four out of the five top gainers on the S&P/ASX 200 yesterday were energy stocks.

Investors sold off airline stocks as crude oil prices rose. Qantas Airways Limited (ASX:QAN) slumped 3.64 per cent to $2.91 and Virgin Australia Holdings Ltd (ASX:VAH) dived 3.88 per cent to $0.495.

The retailers were not spared the sell-off either. Woolworths Limited (ASX:WOW) fell 0.07 per cent to $28.94, and Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, declined 1.50 per cent to $43.41. Myer Holdings Ltd (ASX:MYR) revealed that a shareholder had started class-action legal proceedings against the company on its botched profit downgrade, according to The Sydney Morning Herald.

Internet and telecom stocks also ended in negative territory. Telstra Corporation Ltd (ASX:TLS) dipped 1.10 per cent to $6.30, iiNet Limited (ASX:IIN) fell 0.23 per cent to $8.76 and TPG Telecom Ltd (ASX:TPM) declined 1.97 per cent to $8.98.

Economic news, currency and insight

The Standing Committee on Tax and Revenue has recommended that people in companies charged with tax fraud or tax evasion should be presumed innocent in court – a change from the present system where a taxpayer accused of evasion of fraud is deemed guilty and must prove their innocence, according to The Sydney Morning Herald. The committee apparently made this recommendation after finding that the tax office often went on fishing expeditions and used its powers to gather information for use against a taxpayer.

Overnight on Wall Street, stocks were down for the fourth consecutive session, though a lot of the day’s losses were recouped after strong earnings reports and better-than-expected economic data relating to jobless claims and services sector activity. The Dow Jones Industrial Average fell 40.31 points, or 0.23 percent, to 17,678.23, the S&P 500 lost 4.9 points, or 0.24 percent, to 2,056.15 and the Nasdaq Composite dropped 13.16 points, or 0.27 percent, to 4,863.36.

The Australian dollar was stronger in overnight trade and inched its way towards the 79 US cents level before correcting. At 06:30 (AEDT), the local currency was trading at 78.15 US cents, down from 78.18 US cents yesterday, according to Business Spectator.

The Australian stock market is likely to open flat today given that the June ASX SPI200 Index (AP) Futures was unchanged at 5,885.0 at 06:59 this morning (AEDT).

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