Australian Stocks Follow World Markets Lower; News Corp Drops 4.5%

Marcus Jacob
12 Jul, 2011
New York City

Australian markets followed world markets and declined 1.9% after the euro-zone debt contagion fears widened to Italy. The sudden shift in the sentiment unnerved world stock and commodities markets that saw major indexes decline near 2%.

[R]5:00 Sydney – Australian markets followed world markets and declined 1.9% after the euro-zone debt contagion fears widened to Italy. The sudden shift in the sentiment unnerved world stock and commodities markets that saw major indexes decline near 2%.[/R]

Australian stocks declined sharply following the worldwide sell-off in stocks as fears of the euro-zone debt contagion mounted.

The swift change in mood in bonds market ahead of the meeting of the euro-zone regulators in Brussels was marked by the sustained fall in Italian stocks and banks on Friday that was extended for the second day on Monday.

Italian bond yields on 10-year rose 5.67% and spreads with the German bunds of 10-year soared to record high of 260 basis points.

The world markets were spooked after Italian bond yields inched towards the unsustainable yields of 6% as the economy struggles with growth rate of 1.3%, barely enough to pay interest rate of 5%.

The widening debt contagion has sharpened the focus on the third largest economy in the currency zone and regulators openly worried that any speculative attack on the Italian bonds will require the bailout fund to be expanded to 1.2 trillion euros from the current 700 billion euros.

World markets immediately retracted after the developments in the Italian markets.

The ASX 200 index fell 86.90 or 1.9% to 4,495 and All Ordinaries index dropped 83.30 or 1.8% to 4,564.

The Australian dollar decreased 0.8% to US$1.057 and fetched 86.09 yen. Spot gold in Sydney trading increased $8.20 to US$1,552.10 an ounce.

Macarthur Coal confirmed that it received a joint offer from Peabody Energy and ArcelorMittal. The latest offer values the coal miner at $4.68 billion or $15.50 a share.

The U.S. based largest coal miner Peabody has offered between $15 and $16 a share in the last two years. However, Macarthur has rejected all the offers. ArcelorMittal controls 16.07% of Macarthur.

The company said it will continue its discussion with Peabody and get a detailed understanding of the offer price and price terms and advised shareholders to take no action.

Stock Movers

The fears of debt the euro-zone debt contagion led banks lower in trading.

National Australia Bank declined 3.7% to $23.88 and Macquarie Group fell 6% to $28.22.

News Corp extended losses for the second day in a row after the UK phone-hacking scandal forced the media company to shut down the oldest tabloid. The News of the World has been under fire for years for the lack of journalistic ethics, its techniques of gathering news and its practice of presenting questionable information as news.

The company also faces several lawsuits in the U.S. for the lack of corporate governance. Several municipal and union pension funds filed claims in a U.S. court.

News Corp declined 4.6% to $15.19.

Airlines declined for the second day in a row after the proposal of carbon tax on the industry.

Qantas declined 4.9% to $1.84 and Virgin Blue dropped 8.8% to 31 cents.

Resources stocks declined after the worldwide stock market sell-off that dragged oil and metals lower.

However, coal miners jumped after Peabody and ArcelorMittal offered a new bid for Macarthur Coal. Under the new proposal ArcelorMittal will increase its stake to 40% from 16% and Peabody will control 60%.

BHP Billiton decreased 1.9% to $43.46 and Rio Tinto fell 2.1% to $81.43. Smaller iron ore miner Iluka dropped 5.8%.

Macarthur Coal soared 37% to $15.14 on unsolicited bid of $15.50 a share that values the company at $4.7 billion.

The offer also lifted stocks of other coal miners. Gloucester Coal Limited increased 4% or 33 cents to $8.86 and Whitehaven Coal Limited added 2.5% to $6.25.