- David Rogers
- From: Dow Jones Newswires
- August 04, 2011 4:35PM
Traders said margin calls on leveraged investors also generated significant selling pressure.
"On a short-term basis, the market is oversold and a relief rally will come soon, but overall sentiment is poor and margin selling will continue if the market does not bounce back," Goldman Sachs traders said in a note.
"On a short-term basis, the market is oversold and a relief rally will come soon, but overall sentiment is poor and margin selling will continue if the market does not bounce back," Goldman Sachs traders said in a note.
They warned that global investors could dump stocks in the event of a "bad" US jobs number tomorrow and weak US economic data in August.
"With that, we could see commodity prices also under pressure and then we could get the mother of all trades...the 'unwind of the carry trade', where investors dump commodities, resource stocks and risk assets, which include the Australian dollar and Australian stocks," Goldman said. In the worst case, they said the Australian sharemarket could fall to 4000, or 6.5 per cent below today's closing level.
On the charts, the index was falling toward the May 2010 low at 4175.70, after breaking the August 2010 low at 4313.90. According to Dow Jones Newswires technical analysis, 4230 was the target of a head-and-shoulders continuation pattern.
Overnight in the US, the S&P 500 hit an eight-month low of 1234.56 after ISM's July US services index hit a 17-month low of 52.7 per cent, versus 53.5 per cent expected. Equities recovered after three former top Federal Reserve officials told the Wall Street Journal the US economy could fall back into recession and the Federal Reserve might need to consider a new round of quantitative easing.
"A weak US non-farm payrolls number will make it almost a certainty that the Fed will float QE3 (quantitative easing) at the Jackson Hole central banker's meeting next week," said a senior institutional trader, who declined to be named.
However, previous attempts to stimulate the US economy in the wake of the global financial crisis have failed to generate lasting strength in the economy.
Reflecting heavy offshore selling, major banks fell 1.6 per cent to 2.3 per cent, while Macquarie Group fell 2.4 per cent to $25.05.
Energy stocks were weakest, with Woodside, Santos and Origin down 1.9 per cent to 2.5 per cent after Nymex crude oil fell $US1.86 to $US91.93 a barrel as U.S. crude oil inventories rose.
Energy Resources dived 9.7 per cent to $3.92 as brokers remained negative after the uranium miner pushed ahead with plans for underground drilling to try to extend the life of its aging Ranger mine, at a cost of $120 million. Inventories were revised down after ERA abandoned plans for a heap leach ore processing facility, and rehabilitation costs were revised up.
"While most of the likely share-price underperformance in the short term has now been realised, we believe ERA is still a structural avoid," said Macquarie.
Leighton outperformed with a 0.4 per cent fall to $20 after lowering its expected 2010 loss to $408m, from $427m, while keeping its fiscal 2012 profit guidance at $600m to $650m. Brokers stayed cautious after an additional $278m writedown on Leighton's desalination plant in Victoria.
"With that, we could see commodity prices also under pressure and then we could get the mother of all trades...the 'unwind of the carry trade', where investors dump commodities, resource stocks and risk assets, which include the Australian dollar and Australian stocks," Goldman said. In the worst case, they said the Australian sharemarket could fall to 4000, or 6.5 per cent below today's closing level.
On the charts, the index was falling toward the May 2010 low at 4175.70, after breaking the August 2010 low at 4313.90. According to Dow Jones Newswires technical analysis, 4230 was the target of a head-and-shoulders continuation pattern.
Overnight in the US, the S&P 500 hit an eight-month low of 1234.56 after ISM's July US services index hit a 17-month low of 52.7 per cent, versus 53.5 per cent expected. Equities recovered after three former top Federal Reserve officials told the Wall Street Journal the US economy could fall back into recession and the Federal Reserve might need to consider a new round of quantitative easing.
"A weak US non-farm payrolls number will make it almost a certainty that the Fed will float QE3 (quantitative easing) at the Jackson Hole central banker's meeting next week," said a senior institutional trader, who declined to be named.
However, previous attempts to stimulate the US economy in the wake of the global financial crisis have failed to generate lasting strength in the economy.
Reflecting heavy offshore selling, major banks fell 1.6 per cent to 2.3 per cent, while Macquarie Group fell 2.4 per cent to $25.05.
Energy stocks were weakest, with Woodside, Santos and Origin down 1.9 per cent to 2.5 per cent after Nymex crude oil fell $US1.86 to $US91.93 a barrel as U.S. crude oil inventories rose.
Energy Resources dived 9.7 per cent to $3.92 as brokers remained negative after the uranium miner pushed ahead with plans for underground drilling to try to extend the life of its aging Ranger mine, at a cost of $120 million. Inventories were revised down after ERA abandoned plans for a heap leach ore processing facility, and rehabilitation costs were revised up.
"While most of the likely share-price underperformance in the short term has now been realised, we believe ERA is still a structural avoid," said Macquarie.
Leighton outperformed with a 0.4 per cent fall to $20 after lowering its expected 2010 loss to $408m, from $427m, while keeping its fiscal 2012 profit guidance at $600m to $650m. Brokers stayed cautious after an additional $278m writedown on Leighton's desalination plant in Victoria.
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