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Market report: Friday, February 12

Business

The Australian market looks set to open lower after international markets plummeted as investors spooked by the health of the global economy jettisoned stocks and fled to safe-haven assets.

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At 8.30am (AEDT) on Friday, the share price futures index was down 36 points at 4,731.

Locally, in economic news on Friday, Reserve Bank of Australia Governor Glenn Stevens is due to appear before the House of Representatives economics committee.

The Australian Bureau of Statistics releases housing finance data and overseas arrivals and departure figures, both for December.

No major equities news is expected, but BHP Billiton Olympic Dam president Jacqui McGill is slated to speak at an American Chamber of Commerce in Australia lunch in Adelaide.

NEW YORK – Investors have dumped US stocks across the board, pushing the S&P 500 and the Dow Jones industrial average down more than 10 per cent for the year, on fears over the health of the global economy.

Investors fear that negative interest rates employed by a growing band of central banks to spur economic growth is now part of the problem rather than the solution, and Federal Reserve Chair Janet Yellen said the central bank is looking at negative interest rates after saying the weakened global economy and steep slide in US equity markets is tightening financial conditions faster than the Fed wants.

“It’s a very difficult market right now. Clearly, anything perceived as a risk asset is being sold down,” said Steven Baffico, chief executive officer at Four Wood Capital Partners in New York.

“The bigger issue … what, in my mind, is driving all this selloff is that markets are losing confidence in central banks’ ability to act as an effective referee,” he said.

LONDON – Britain’s top share index has slumped, with a sharp sell-off in major banking and mining stocks pushing the market down to its lowest level in more than three years.

Banks were among the worst performers amid concerns about the industry’s profitability in a low-growth, low-interest rate environment, with the UK Banks index sinking 5 per cent to a seven-year low.

“Banks have been hit hard and further steep weakness can not be ruled out in the near-term. Margin pressure is becoming a big concern for the sector,” said Jawaid Afsar, senior trader at Securequity. “Earnings results from some big banks have done little to revive investors’ confidence.”

The International Monetary Fund said it was concerned about recent sharp share price declines for European banks, as a robust banking sector was needed to sustain economic recovery.

HONG KONG – Turbulence has torn through global markets as investors sought the safety of Japanese yen, gold and top-rated bonds while dumping US dollars on bets the Federal Reserve could be done with raising interest rates.

“What this shows is that the risk-off mode has come back very quickly and that the worst may still be to come in these markets,” said Rabobank European strategist Emile Cardon.

“What is different to previous times is that the bad news in now coming from everywhere, China, Portugal the US the commodity sector the banking sector. It’s like several smaller crises could combine into one big crisis.”

The flight from risk told on most Asian shares, with Hong Kong – a favourite channel for global investors to play China – diving 4.2 per cent as investors there returned from the long Lunar New year holidays. Mainland China markets are closed all week.

WASHINGTON – Federal Reserve Chair Janet Yellen has returned to Congress with a brave face amid a worsening meltdown in global markets and growing scepticism the US central bank can carry out its long-planned pivot to “normal” monetary policy.

Fewer Americans applied for unemployment benefits last week in a sign of a stable job market despite the slowing global economy hitting stocks and commodities.

ALBANY, New York – US federal and state authorities have announced a $US3.2 billion ($A4.51 billion) settlement with Morgan Stanley over bank practices that contributed to the 2008 financial crisis, including misrepresentations about the value of mortgage-backed securities.

ENERGY

US Oil prices have tumbled below the $US30 mark, and approaching 12-year lows hit in January, on brimming crude inventories and a Goldman Sachs forecast that prices would remain low and volatile until the second half of the year.

But oil prices diverged later in the session.

WTI oil was down 20 US cents, or 0.73 per cent, at $US27.25 a barrel at 0834 Friday AEDT whhile Brent crude was up 45 US cents, or 1.45 per cent, at $US31.29.

PRECIOUS METALS

Gold has vaulted more than five per cent to a one-year high, on track for its biggest daily jump in more than seven years as financial uncertainty, a lower US dollar and tumbling stock prices around the world prompt investors to seek refuge in bullion.

Investors grew more worried about banks’ profitability in a low-growth and low-interest rate environment. US Treasury yields tumbled in another safe-haven play that also bolstered demand for gold.

“The safe-haven seekers are moving back. We recommend clients add gold to their portfolios as insurance, if things turn out really bad, there will be much more upside,” said Julius Baer analyst Carsten Menke.

“Look at the massive inflows into ETFs (Exchange Traded Funds) this year. They put the price recovery on a much more solid footing than any of the other recoveries we’ve seen over the past couple of years.”

BASE METALS

Copper has risen as the US dollar slips, but fears for global growth sparked by worries about a potential financial crisis and uncertainty about demand in China has curbed gains.

The FTSEurofirst 300 share index plunged to its lowest level in two-and-a-half years, hit by a renewed slump in banks and miners.

Comments from the US Federal Reserve’s chairwoman, Janet Yellen, that tighter credit markets, volatile financial markets and uncertainty over Chinese economic growth have raised risks for the US economy also undermined confidence.

“In the short term, the weaker dollar is helping copper,” VTB Capital analyst Wiktor Bielski.

“But there are a lot of uncertainties, from what’s happening in China to the fact that everybody thinks the Fed made a big mistake in December when it raised rates and what it will do now.”

ASX stocks to watch Friday, February 12

BHP – BHP BILLITON

FMG – FORTESCUE METALS GROUP

RIO – RIO TINTO

Mining company shares could be hit following market turbulence and a fall in the price of ore to $US45.25.

ORG – ORIGIN ENERGY

OSH – OILSEARCH

STO – SANTOS

WPL – WOODSIDE PETROLEUM

Energy companies can expect another hit on Friday with the price of WTI falling more than 2.5 per cent to well below the $US30 mark, to be down 2.81 per cent at $US26.28 at 0755 AEDT on Friday.

RIO – RIO TINTO: Rio Tinto shareholders will have their returns slashed as the mining giant tightens its belt after falling to a $US866 million ($A1.22 billion) annual loss.

AAP

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