June 02, 2012
The market slide of May isn't over. Photo: Peter Braig
The Australian dollar sank to its lowest mark against the greenback in almost eight months overnight and local shares are poised to resume their slide after weak US jobs figures added to concerns about the strength of the global economy.
The Aussie dollar hit 96.34 US cents before clawing back to trade near 97 US cents, capping five weeks in a row of losses against the greenback.
Local shares are set to sink when they open on Monday, with SPI200 futures down 58 points, or 1.4 per cent, to 4012. A loss of that amount would drag the ASX200 index near the key 4000-point mark, a level it's not breached since November 28 last year.
The renewed slump on global markets will add pressure on the Reserve Bank to cut its cash rate again when it meets to set interest rates on Tuesday. Investors view the likelihood of another 50 basis-point cut as a 50-50 chance, with a 25 basis-point reduction deemed a certainty. Economists, though, are divided on whether the central bank will lower the cash rate or leave it at 3.75 per cent.
The latest round of market turmoil was triggered a rise in the US unemployment rate in May to 8.2 per cent, from 8.1 per cent, after the world's biggest economy added the fewest jobs in a year.
The poor US employment result capped a week of disappointing economic numbers from Europe and China, and raised doubts that the American economy will be able to drive a global revival.
“The picture is getting more worrisome,” said Bruce Kasman, chief economist for JPMorgan Chase, which lowered its 2012 growth forecast to 2.1 per cent from 2.3 per cent after the jobs report. “The US economy is going to be somewhat softer over the next couple of quarters.”
On Wall Street, the Dow Jones Industrial Average lost 2.2 per cent, the broader S&P 500 shed 2.5 per cent and the Nasdaq sank 2.8 per cent on the jobs figures.
European markets also retreated, with London's FTSE100 falling 1.1 per cent, France's CAC40 dropping 2.2 per cent and Germany's Dax dived 3.4 per cent.
Australian resource producers may have a rough start to next week, particular those in the energy sector, after oil prices sank 3.8 per cent in New York to the lowest level in eight months.
BHP Billiton shares fell 0.8 per cent in New York trading, while Rio Tinto's US-listed shares fell 1.2 per cent.
Gold miners, though, may buck the downward trend after prices for the precious metal surged by the most in 10 months on expectation that the faltering US economy will prompt the Federal Reserve to embark on another round of monetary easing to spur growth.
Gold futures leapt 3.7 per cent to $US1622 an ounce, reversing much of May's 6 per cent retreat.
Australian shares posted their worst month in May for two years, shedding about 7.3 per cent or some $100 billion, as concerns about Greece's potential exit from the eurozone flared.
Australia's biggest export market, China, is also showing signs of slowing, denting commodity prices and cutting demand for the Australian dollar.
BusinessDay with Bloomberg