A surprise downgrade of Italy by Standard and Poor's early today (local time) has added to concerns of contagion in the debt-stressed euro zone, sending local stocks lower at the market's open.
The S&P/ASX200 index fell 11.9 points or 0.3 per cent, to 4069.6 and the All Ordinaries dropped 13 points, or 0.3 per cent, to 4151.1 in early trade, after Standard and Poor's said the cut reflected its view of Italy's weakening economic growth prospects.
Standard and Poor's downgraded its unsolicited ratings on Italy by one notch to A/A-1 and kept its outlook on negative.
The Aussie dollar has dropped sharply against the greenback today, dipping from $US1.022 to $US1.018 about 8.30am following news of Italy's downgrade.
The RBA releases the minutes of its September monetary policy meeting today. Interest rate futures give a rate cut a 90 per cent chance when the TBA board meets on October 4.
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Before the market's open, Austock client adviser Michael Heffernan said he expected Australian stocks to trade weaker today but not to post sharp losses after S&P’s downgrade of Italy’s debt.
‘‘I think we’re getting a bit inured to these downgrades,’’ said Mr Heffernan.
‘‘At the moment, I wouldn’t say it's going to have any substantial or material impact on our market. We’re getting used to being beaten around the ears by Europe and I don’t think this is a calamity.’’
However, Australia’s banking stocks would likely trade lower on the recent announcement from Europe, he said.
‘‘The banks have been swept up in this European financial tsunami, it doesn’t matter whether we say they have little contact with Europe, they’re getting affected because they’re in the same ocean so to speak.
‘‘But our financials have been belted mercilessly this year, so whether it has any additional affect would be surprising.’’
Making news today
In economics news:
- Minutes of Reserve Bank of Australia September board meeting released
- Commonwealth Bank Business Sales Index (BSI) for August
Today (US time) the US Federal Open Market Committee meets for a one-day meeting
In company news:
- Gold Anomaly Ltd holds annual general meeting
- TMA Group Ltd hold extroadinary general meeting
- Red Sky Energy hold extroadinary general meeting
- Berkeley Resources Ltd hold extroadinary general meeting
- Uran Ltd holds extraodinary general meeting
- New Hope Corporation Ltd releases full year results
- TPG Telecom Ltd releases full year results
Offshore overnight
United States
US stocks fell, following the longest rally since July for the Standard & Poor's 500 Index, as investors weighed developments on Greece's debt crisis.
Key numbers:
- S&P 500 lost 1% to 1204.09
- Dow Jones Indus Avg lost 0.94% to 114001.01
- Nasdaq composite lost 0.36% to 2612.83
President Barack Obama laid out a $3 trillion plan to cut US deficits by raising taxes on the rich, but Republicans rejected it as a political stunt and made clear the proposal has little chance of becoming law. But Republicans said the plan has little chance of becoming law.
Europe
Standard and Poor's downgraded its unsolicited ratings on Italy by one notch to A/A-1 and kept its outlook on negative, a major surprise that threatens to add to concerns of contagion in the debt-stressed euro zone.
Greece will continue talks with the IMF and EU today after being warned to tighten austerity measures and ramp up state asset sales to secure rescue funds and stave off bankruptcy early next month.
European stocks slumped and the euro fell sharply against the US dollar on heightened fears of another global financial crisis as Greece went into talks to secure critical rescue loans and a new political feud emerged in the United States
Key numbers:
- In Paris CAC 40 lost 3.0% to 2940
- In Frankfurt the DAX lost 2.83% to 5415.91
- London's FTSE 100 lost 2.03% to 5259.56
Elsewhere in Europe, Milan fell 3.17 per cent, Madrid 1.98 per cent, Lisbon 2.21 per cent, Amsterdam 2.52 per cent and Zurich 1.69 per cent.
Asia
Asian stocks fell after European policy makers failed to introduce a plan to stem the region's debt crisis, dimming the earnings outlook for banks, exporters and raw-material producers.
Key numbers:
- In Japan, the Nikkei added 2.25% to 8864.16
- In Hong Kong, the Hang Seng lost 2.8% to 18917.95
- In China, the Shanghai Composite lost 1.8% to 2437.79
The dollar
The Australian dollar is weaker today as Greece continues talks with the International Monetary Fund and the European Union after being warned to tighten austerity measures.
At 6.25am AEST, the local unit was trading at $US102.25 down from $US102.45 US cents yesterday. That marks the lowest versus the greenback since August 11 the local unit went as low as $US101.12, according to Bloomberg.
The Aussie was also buying:
- 77.9 Japanese yen
- 74.71 euro cents
- 65.1 British pence
- $1.23 NZ
The Aussie has today hits its lowest point against the yen since the March tsunami.
HiFX senior trader Stuart Ive said the Australian dollar could fall below parity with the US dollar in coming days after credit rating Standard & Poor’s downgraded Italy’s sovereign debt, significantly raising the level of fear in markets.
“The US dollar gained (on the news),” he said. “The Euro, the Kiwi and the Aussie have all been hit very quickly.”
If attention switches to Italy as well as Greece in coming days, Mr Ive said investors should expect a bigger market reaction from the Euro debt crisis.
"This will add fuel to the fire. It boils down to continued risk aversion and continued pressure on Europe and the potential break up of the current European Union," he said.
"Whether that’s how it all plays out we’ll just have to wait and see."
How we fared yesterday
Australian stocks took another hit yesterday as European policymakers' fumbling attempts to solve a crippling sovereign debt crisis hit sentiment.
At the close, the benchmark S&P/ASX200 index was down 67.9 points, or 1.6 per cent, at 4081.5, while the broader All Ordinaries index fell 65.8 points, or 1.6 per cent, to 4164.1.
What you need to know
- The SPI was 4 points higher at 4100
- The $A was trading lower at $US1.018
- In the US, the S&P500 lost 11.9pts, or 1%, to 1204.1
- In Europe, the FTSE100 fell 108.85pts, or 2%, to 5259.5
- Gold fell $US35.80 to $US1785.90 an ounce
- WTI crude oil fell $US2.26 to $US85.70 a barrel
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