australian stocks reel from a second day of yuan devaluation 1879782015
The devaluations hit miners particularly hard
Australian stocks fell sharply on Wednesday led by China’s surprise second devaluation of its yuan currency by 1.6 per cent, following on from the previous day’s devaluation of 1.9 per cent.
The Australian share market was not alone, as stock exchanges across the globe traded in the red on the growing realisation that China, the world’s second-largest economy, was facing significant economic headwinds.
More specifically, the currency actions by China were detrimental to Australian companies, particularly miners who export to that country and mostly invoice in US dollars. The landed cost of their exports in China, in yuan terms, has gone up after the devaluations.
Indices and sectors
The benchmark S&P/ASX 200 fell 91.1 points, or 1.7 per cent, and closed at 5,382.1, while the broader All Ordinaries index was down 89.6 points, or 1.7 per cent, at 5,383.5.
The top losing sectors included information technology (-7.84 per cent), materials (-3.59 per cent), energy (-3.34 per cent), consumer discretionary (-2.03 per cent) and consumer staples (-1.78 per cent). There were no gaining sectors.
Stocks
Mining stocks were under severe pressure Wednesday with Fortescue Metals Group Limited (ASX:FMG) losing nearly 8 per cent at AU$1.79, BHP Billiton Limited (ASX:BHP) down 4.33 per cent at AU$25.20 and Rio Tinto Limited (ASX:RIO) lower by 2.8 per cent at AU$51.65. Atlas Iron Limited (ASX:AGO) shed 6.45 per cent to end at AU$0.029. However, gold miner Northern Star Resources Ltd (ASX:NST) gained 3.54 per cent to close at AU$2.05 and was among the top gainers on the S&P/ASX 200.
In energy, Woodside Petroleum Limited (ASX:WPL) lost 3.77 per cent to AU$33.44, Origin Energy Ltd (ASX:ORG) fell 3.05 per cent to AU$9.84, Oil Search Limited (ASX:OSH) slipped 3.13 per cent to AU$6.80 and Santos Ltd (ASX:STO) slumped nearly 5 per cent to AU$6.47.
Banks all closed in the red, even as Commonwealth Bank of Australia (ASX:CBA) was under a trading halt. Westpac Banking Corp (ASX:WBC) fell 1.44 per cent to AU$31.59, National Australia Bank Ltd. (ASX:NAB) was down nearly 2 per cent to AU$31.82, and Australia and New Zealand Banking Group (ASX:ANZ) declined 1.90 per cent to AU$29.50. The Commonwealth Bank of Australia (ASX:CBA) reported full-year net profit of AU$9.06 billion, up 5 per cent on the previous year, and announced a rights issue offered in the ratio of one new share for every 23 already held and priced at AU$71.50 per share, a discount of 13 per cent to the last traded closing price of AU$82.12.
In retailers and supermarkets, Metcash Limited (ASX:MTS) was the sole bright spot gaining 0.85 per cent to AU$1.18. Elsewhere in the sector, Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, was down 1.20 per cent to AU$41.05, Woolworths Limited (ASX:WOW) slumped 2.78 per cent to AU$26.90, Caltex Australia Limited (ASX:CTX) fell 0.21 per cent to AU$32.52 and Myer Holdings Ltd (ASX:MYR) fell 2.89 per cent to AU$1.35.
Biopharmaceutical company CSL Limited (ASX:CSL) fell 2.22 per cent to AU$93.00 even as it reported a record full-year profit of US$1,379 million (AU$1,884 million) on the back of its acquisition of the Novartis flu vaccine business, according to ABC. The reported profit jumped 6 per cent over the previous year and was in line with market expectations.
Economic news, currency and market outlook
In another surprise move the People’s Bank of China devalued the yuan against the US dollar for the second day in a row after it set the yuan fixing at 6.3306 against the US dollar, down 1.6 per cent from the previous day’s close. The bank’s action flew in the face of its previous assertion that the devaluation on Tuesday was a “one-off depreciation.” However, the continuing fall in the value of the yuan took a severe toll on stock markets around the world.
The Westpac-Melbourne Institute Sentiment Index, a widely watched measure of consumer confidence, read 99.5 for August, up 7.8 per cent from July, as worries about the Greek debt crisis and the China stock collapse receded, even though unemployment rose higher. The jump in confidence surprised Westpac chief economist Bill Evans who said: “We don’t often see jumps that size. We did actually see one in May, but that was a positive response to the budget as well as the interest rate cut from the Reserve Bank.”
On Wall Street on Wednesday, stocks recouped most of their early losses following China’s devaluations of its currency. At the closing bell, the Dow Jones Industrial Average traded flat at 17,402 after plunging 277 points, or 1.6 per cent, earlier in the session. The S&P 500 gained 0.1 per cent, while the Nasdaq Composite added 0.2 per cent.
The Australian dollar has rebounded after briefly touching a fresh six-year low, according to the Business Spectator. At 07:00 this morning (AEST) the Australian dollar was trading at 73.82 US cents, up sharply from 72.62 US cents on Wednesday.
The Australian stock market is likely to open higher today given that at 07:15 am (AEST) today the September ASX SPI200 Index (AP) Future contract was up 23 points at 5,322.
