Headline indices of the Australia market declined to lowest level in four-month on Tuesday, 09 October 2018, as risk aversion selloff triggered on following the mixed cues overnight from Wall Street amid simmering anxiety about higher US bond yields, political dysfunction in Europe, the Sino-US trade tensions, and the IMF global growth forecast reduction, citing trade disruptions. In late afternoon trades, the benchmark S&P/ASX200 index dropped 54.31 points, or 0.9%, at 6,046 points, while the broader All Ordinaries index declined 58.63 points, or 0.9%, to 6,160 points.
The International Monetary Fund has cut its global growth forecasts, expecting global economy to grow at 3.7% this year and next year down 0.2 %age points from an earlier forecast. The IMF maintained that the U. S. and China will grow by 2.9% and 6.6%, respectively, this year but said both would slow more than expected to 2.5% and 6.2%, respectively, in 2019. The IMF said emerging economies as a whole have experienced larger volumes of capital outflows as investors shift their money out on the back of rising interest rates in the U. S. Countries.
The People's Bank of China's move over the weekend to reduce how much cash lenders must hold as reserves -- the so-called reserve requirement ratio (RRR) -- came as challenges to the economy grow, including fallout from the US-China trade war. As per reports, the reduction in RRR could pump about $175 billion into the economy, especially to small to medium size businesses. China's RRR cut reinforces expectations of more policy easing ahead, putting China on a divergent path of monetary policies with the United States, where 10-year treasuries yields hit seven-year highs as the Federal Reserves keeps raising rates. Yields of China's 10-year central government bonds have been trending lower this year, standing at 3.633% on Oct. 8. That compares with the 3.227% yield for U. S. bonds, the highest level since May, 2011.
The narrowing interest rate differentials between China and the U. S. will exert more downward pressure on the RMB. The Yuan had slid to its lowest official close against the dollar in seven weeks on expectations Beijing would follow Sunday's policy easing with more stimulus. On Monday, a senior US Treasury official expressed concern at the fall in the yuan, adding that it was unclear whether Treasury Secretary Steven Mnuchin would meet with any Chinese officials this week.
Shares of materials and energy companies were softer. BHP was down 0.5% and Rio Tinto was lower by 0.5%, while Fortescue Metals rose almost 1% after iron ore and copper prices firmed. Santos and Woodside Petroleum fell almost 1% each, while Oil Search dropped more than 1%. A dip in the gold price has hit local miners, with Newcrest, Northern Star and Evolution slipping between 0.4 and just over 1 per cent.
Shares of banks and financial players were mostly lower. National Australia Bank and Westpac were down by 0.5% and 0.2% respectively, while ANZ Banking is adding 0.2%. Commonwealth Bank was down 0.6% after the lender said it will launch a remediation program for deceased estates after charging twelve accounts with unauthorized financial advice fees earlier this year.
Among individual stocks, shares of Ramsay Health fell more than 2% after its French subsidiary has raised its takeover bid for European private hospital operator Capio by 20% to $1.28 billion.
CURRENCY: Australian Dollar was tad higher against greenback and other major currencies on Tuesday. The Australian dollar was quoted at $0.7076, up from $0.7060 on Monday.
OFFSHORE MARKET NEWS, US stock market closed mixed on Monday, as many traders remained away from their desks for the Columbus Day holiday. Traders also seemed reluctant to make significant moves, as the bond markets were closed along with banks and federal offices. The Dow Jones Industrial Average added 39 points, or 0.2%, to 26,486. The Nasdaq composite fell 52 points, or 0.7%, to 7,735. The Standard & Poor's 500 index slipped 1 point to 2,884.
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