Market slump worsens: Economy roundup

The Australian sharemarket slide continued today with the S&P/ASX200 falling more than 1.3% in its first 20 minutes of trading this morning following yet more bad news from the US housing market overnight.

By 12.30pm the key index had come back slightly but was still down more than 58 points, or 1%, to 6069.2 on yesterday’s close of 6128.1.

The fall further entrenches the Australian market’s move into correction territory, with the S&P/ASX200 now more than 10% lower than its most recent high of 6828.7 recorded on 1 November.

The US Dow Jones Industrial Average fell 1.86% to 12,589.07 points after an index of pending home sales dropped a bigger than expected 2.6% in November.

Worries about the impact of the international financial crisis on Australia has been reinforced today by comments by Australian Prudential Regulation Authority chairman John Laker that APRA has stepped up its scrutiny of Australian banks to ensure they have sufficient liquidity to survive a drought in wholesale borrowing opportunities.

Ian Rogers, editor of banking newsletter The Sheet, says the move is in line with APRA’s usual functions but does suggest a heightened level of concern about Australian banks’ ability to continue to operate effectively in the current environment.

“It may simply be a practical extra effort by APRA to watch what’s happening because of the nature of funding conditions on banking markets worldwide,” Rogers says. “If there is a crisis and a rush on funds, banks will need to have higher levels of liquid funds on hand.”

But strong retail sales figures released today provided a counterpoint to the negative market sentiment, with sales for November 2007 increasing 0.8% seasonally adjusted.

Department stores, recreational goods and miscellaneous retail goods categories experienced the fastest growth.

The result, which exceeds market expectations of a 0.5% rise, will fuel expectations that the Reserve Bank of Australia will have to lift interest rates in the next few months to keep a lid on inflation.

The number of job vacancies in Australia in November 2007 also increased 4.2% in August to 181,000, a result that again reflects a picture of a surging economy pushing against capacity constraints.