Financial markets around the world have been looming under the dark cloud of global depression, but the markets still seemed to be in a denial mode. The downfall of the markets yesterday ended all the false hopes. This thrashing suffered by the markets clearly indicating signs of economic weakness around the globe has irked the economists and investors alike. The slump of the already weak markets was triggered by the U.S Federal Reserve’s acknowledgement of a significant downside risk to the economy. They also referred to strains in the global economy pointing to the debt crisis in Europe. This statement made on Wednesday hard hit the U.S markets immediately after opening yesterday. All the major U.S indices including S&P, Dow Jones and NASDAQ fell more than 3%. The Australian Index (ASX) slumped by 102 points (2.47%) to its lowest in the last 26 months.
The Australian market witnessed a roller coaster ride throughout the week but on Thursday it plummeted further. The ASX All Ordinaries witnessed a 5 day change of 5.9 % in red while closing on Friday. With the carnage of markets witnessed by U.S and Europe Wednesday night, Australian markets dropped around 2% in the early minutes of trade. AEST, the All Ordinaries Index dropped by 108.9 points to 4044.7 and ASX 200 dropped 2.63% to reach 3964.9. The Australian stock value of about $31 billion got wiped out throughout the day.
Australian market witnessed heavy selling and some of the biggest blue chip shares like BHP Billiton witnessed around 4% loss. The Australian Dollar is at its 10 month low at US96.92 cents. This was the biggest loss after May 2010 when similar global financial fears had gripped the market. Retail bank shares including National Australia Bank, ANZ, Commonwealth Bank were down between 1.76 % to a maximum of 2.75%. But the hardest hit was faced by the investment bank Macquarie as it shares dropped by 3.8%. Even the energy sector witnessed decline with Woodside losing by 3.4%. Miners like BHP Billiton and Rio Tinto faced dual blow - the crisis and fading prospects for demand for commodity. Concerns of the U.S economy sharply lowered the commodity linked Australian Dollar due to global sell offs. The spot price for gold in Sydney lowered $US24.30 to $US 1,747.10 per fine ounce on Thursday.
As Australian Dollar is tied to a global growth story, it is being driven by the global factor and depreciation in its value will slow the pace of growth in Australia. It will deter the investors from parking their money in the Australian markets due to eroding incentives.
Though Australia is facing the heat of a global crisis especially on its stocks, the Central Bank of Australia RBA states Australia is in a relatively strong condition and well placed amid the uncertainty. It also says that there has been a modest impact on the banks though there was a fall in share prices of banks. Standard and Poor’s has approved Australia with a triple-A credit status confirming the confidence of stability of the country’s Central Bank. Australia will sure bounce back in the global market and transform this set back into an opportunity.
