Stocks dive on recession fears as investor confidence plunges

• Scott Murdoch
• From: The Australian
• September 06, 2011 12:00AM

Source: The Australian

THE Australian sharemarket plunged 2.38 per cent yesterday amid fears the US economy was heading for a fresh recession and a survey revealed investor confidence in Australia has hit its lowest point since the first quarter of 2009.

About $30 billion was wiped from the value of Australian shares and Asian markets were also sold down heavily as the impact from the shock jobs numbers in the US that spooked Wall Street at the weekend was felt throughout the region.

The major European markets all opened more than 2 per cent lower last night.

The US non-farm payroll figures showed there had been zero job creation in the past month in the US, sparking worries that the economic recovery would stall or even slip into a recession.

The share plunge came as a survey showed investor confidence in Australia has reached its lowest point since the first quarter of 2009, when the domestic stockmarket plunged due to the unfolding global financial crisis.

For the third quarter of 2011, investor sentiment in Australia fell 15.7 points to minus 21.7, according to a survey of 820 investors by CoreData.

It showed that 80 per cent of investors expect an economic slowdown in the coming quarter and 68 per cent expect business conditions to deteriorate.

Macquarie Private Wealth adviser James Rosenberg said markets would be depressed while question marks remained over the direction of the US economy.

"The market has pretty much closed on its low and that's obviously the result of the negative lead from the disappointing US data," he said. "As soon as the regional markets opened, they were all in the red.

"It's too early to say that the US is definitely going into recession, but most of the data is pointing to the fact that the rate of recovery is going to be slower." There isn't a lot of good news around at the moment."

Locally, the tone was negative from the start but worsened during the sessions, with the share-price falls of the major banks driving the market to close almost at its lows. The performance was also worsened by some major stocks, including BHP Billiton, trading ex-dividend.

The S&P/ASX 200 lost 101 points, or 2.38 per cent, at 4141.9 points, while the broader All Ordinaries index fell 97.3 points, (2.25 per cent) to 4224.2 points.

The Australian dollar was also caught up in the negative sentiment and tumbled from $US1.0675 to as low as $US1.0575 as European foreign exchange markets came online last night.

In Asia, the Nikkei index in Tokyo was off by 1.8 per cent while in Hong Kong the mood was darker, with the Hang Seng down 2.95 per cent.

The US market was closed for the Labour Day public holiday.

The Reserve Bank meets in Perth today to set interest rates for September. The interbank futures market tips there is a 22 per cent chance the board could order a 25 basis-point cut to the 4.75 per cent official cash rate. It also predicts that interest rates could be 127 basis points lower by this time next year.

The majority of economists have forecast that the RBA will leave rates on hold for the next few months.

NAB's chief markets economist, Rob Henderson, said the RBA's neutral tone on monetary policy was unlikely to change as financial market conditions.

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