Co-ordinated rate cut fails to prevent another share slide, job ads fall: Economy roundup

Australia’s sharemarket has continued to tumble this morning, despite central banks across Europe, Britain and the US launching a concerted effort to cut official interest rates and unfreeze global credit markets.

Australia’s sharemarket has continued to tumble this morning, despite central banks across Europe, Britain and the US launching a concerted effort to cut official interest rates and unfreeze global credit markets.

The benchmark S&P/ASX200 index has fallen 1.7% this morning or 72.6 points to 4315.5 at 11:45am AEST.

The big drag on the market has been Commonwealth Bank, which announced a $2 billion capital raising that will help it pay for yesterday’s acquisition of BankWest from struggling British bank HBOS. The company’s shares slid a whopping 13% shortly after the raising was completed, but have since recovered to be around 8% down.

In more evidence of how nervous consumers are at the moment, CBA chief executive Ralph Norris also revealed the bank is experiencing the highest rate of deposit growth in its history, as households and businesses shift their investments into cash in the wake of financial market turmoil.

That news should thrill investors and the RBA, as it the more deposits Australia’s banks can attract, the less they will need to borrow from overseas.

The RBA won’t be so thrilled with this morning’s announcement from online job advertiser SEEK, which said the number of job ads on its site fell 2.2% in September, while the number of job applications rose by 1.9%. Not surprisingly, employers and employees are very nervous right now.

The Australian market got a better lead from Wall Street last night, after the US Federal Reserve, the European Central Bank, the Bank of England and the central banks of Canada and Sweden all cut their official interest rates by 0.5%, with China also dropping its one-year interest rate by 0.27%.

The emergency rate cuts are designed to encourage banks to lend to each other and stimulate lending to households and businesses. But it is also designed to show investors around the world that central banks are actively trying to prevent a global recession.

Most economists believe the move was long overdue, and it won’t be surprising to see the tactic repeated if conditions continue to worsen.