The Australian sharemarket has dropped over 2% after Wall Street was dragged down by fears that the debt of US banks could be far worse than expected.
The benchmark S&P/ASX200 index was down 102.9 points or 2.73% to 3666.1 at 12.10 AEST. The dollar also lost ground, slipping back to US69 cents.
NAB shares lost 3.3% to $21.32 as ANZ dropped 2.9% to $16.55. Westpac lost 2.7% to $19.71 as BHP Billiton dropped 3.6% to $31.70.
In the US, Wall Street fell more than 3.5% after new results from Bank of America drove fears that the banking industry is performing worse than expected. While the bank posted a rise in net income from $US1.02 billion a year ago to $US2.81 billion, a number of troubled loans shocked the market.
The Dow Jones Industrial Average dropped 289.6 points or 3.56% to 7841.73 points. Shares in Bank of America fell a massive 24.3% to $US8.02.
RBA hints at more rate cuts
Back home, the Reserve Bank of Australia says it cut interest rates by 25 basis points two weeks ago due to a weaker than expected fall in demand, but says it expects recovery towards the end of the year.
“Nonetheless, the effect of recent international and domestic information had been that the near-term outlook for demand and output in Australia was now weaker than earlier expected, though a recovery in demand was likely towards the end of the year,” the minutes of the 7 April meeting say.
“A period of low capacity utilisation and a weaker labour market was seen as increasing the likelihood of a decline in inflation over the medium term. As such, members saw scope for a modest reduction in the cash rate.”
The RBA also expects GDP to fall during 2009, “but increase again in 2010”.
“Members noted, however, there was now considerable economic policy stimulus in place in most countries, which could be expected to support recovery over time,” the board said. “Tentative signs of improvement could be seen in some indicators for several countries, but it was too early yet to judge how durable they would prove to be.”
Coles results improve
Wesfarmers has announced that sales at its Coles supermarkets have grown 6% in the third quarter, and that a turnaround strategy is working despite lower consumer confidence.
The company says food and liquor sales have grown 6% to $5.3 billion by the end of March, while shop and fuel sales at Coles petrol stations and convenience stores also rose 6.7% and 4.4% respectively.
The announcement comes after rival Woolworths announced a 7.9% rise in third-quarter sales.
Property group GPT has announced that former St George Bank chief financial officer Michael Cameron will take the chief executive role in the company from 1 May.
The company has also said that existing director Ken Moss will take the chairman of the board role from the same date. The company has been attempting to sell off non-core assets to pay off debt, and posted a loss of $3.25 billion for the calendar 2008 year.
Rudd admits we’re headed for recession
Prime Minister Kevin Rudd has announced that it is inevitable that Australia will fall into a recession.
“The worst global economic recession in 75 years means it’s inevitable that Australia will be dragged into recession,” Rudd told an economic forum in Adelaide yesterday.
“The severity of the global recession has made it impossible for Australia to avoid a further period of negative economic growth.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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