Australian sharemarket down after Wall Street fall on Friday

PM - Monday, 24 March , 2003 18:35:00 Reporter: Darcy Lambton

Mark Colvin presents PM on ABC Local Radio, Monday to Friday, 6:10pm. Join Mark for 50 minutes of current affairs, wrapping the major stories of each day.

MARK COLVIN: It's been an edgy Monday for the Australian share market; it shed 10 points in the session. Doubt is creeping back into the market after the weekend's military setbacks. Last Friday, Wall Street posted its biggest weekly gain in 20 years, amid expectations that war will be short, sharp and victorious. But Wall Street may turn ugly when it reopens, if Australian stocks are any anything to go by. Darcy Lambton reports. DARCY LAMBTON: Around the world, investors are anxiously waiting to see how events take shape on Wall Street this week. Today's downward performance on the Australian share market underline the fears of many. Peter Ward of Austock Brokers expects similar declines in the US. PETER WARD: Features on the US market for this morning's opening are negative, so we'd certainly expect things to at least open up on a downward basis, and probably stay that way, I would have thought, some throughout the duration of the day. DARCY LAMBTON: The US rally last week was huge, but the market's mood of optimism remains fragile. Certainly, room for upward momentum is tight. US stock prices already reflect expectations of a swift military defeat for the Iraqi regime. But if Iraq's fight back continues, Wall Street's previous bullishness may beat a hasty retreat, and that would have implications for share markets around the world, including Australia's. Tim Rocks, Secretary Strategist at Macquarie Bank, says the potential downside is sizeable. TIM ROCKS: Generally, the economic situation in the world is not great, and in fact the recent data that we get out of the US has been deteriorating. On top of that, the US profit outlook has not been that great as well, and what's more in Australia that those things are reasonably negative as well. The economy has been slowing down, and Australian profits have been disappointing as well. If Iraq doesn't get better, and all these other things are bad, then it's easy to see the market continuing to slide below the bottom that it reached about two weeks ago. DARCY LAMBTON: Do you expect to see big swings in the market? We had like 20-year highs reached in the US last week; could we see similar falls downwards, sharp falls downwards, if events in Iraq don't according to plan? TIM ROCKS: Oh absolutely. The next few weeks is going to be incredibly volatile. The market is going to jump up and down with hourly movements, perhaps, in the outcome of the war. So, it's going to be a pretty sort of scary environment for investors that are sort of watching those sort of day-to-day movements. DARCY LAMBTON: In the current climate of soaring equities, oil prices have crumbled, falling to around US$27 a barrel. They're tracking border confidence for a quick Iraqi capitulation. But unlike the 1991 Gulf War, the world economy isn't best prepared for an eruption in prices. Then, the Organisation of Petroleum Exporting Countries had spare capacity of 6 million barrels per day if supplies were seriously disrupted. That figure is now only 2 million. The after affects of Venezuela's general strike, and a 20 per cent reduction in Kuwaiti output aren't helping. Meanwhile, the US is contending with dangerously low oil inventories, not to mention a current account deficit of 5 per cent of GDP. It's an unpalatable cocktail, that, mixed into a messy war with Iraq, poses major economic concerns. Tim Rocks, of Macquarie Bank. TIM ROCKS: Oil prices affect petrol prices, and petrol prices are a big direct expense in everybody's budget, and they're also an indirect offence, because there's transportation costs associated with everything we buy. When we go to the supermarket, all those goods need to be transported using, sort of, the cost of petrol. So businesses get squeezed and they try and sort of pass on those extra costs to the consumer. So that does mean that your hip pocket really gets hurt when oil prices are high. So if those petrol and oil prices continue to rise, then it does have a big economic affect. MARK COLVIN: Tim Rocks, of Macquarie Bank, ending that report from Darcy Lambton.