Australian Index Drop 1.6%; Wesfarmers Sales Up

Marcus Jacob
28 Jul, 2011
New York City

Australian stocks dropped after the U.S. markets declined as much as 2% on the prospect of the debt default. Banks and resources linked companies traded lower as the U.S. lawmakers act recklessly with the debt negotiations and put global growth at risk. The Australian dollar traded at a new high.

[R]4:30 PM Sydney – Australian stocks dropped after the U.S. markets declined as much as 2% on the prospect of the debt default. Banks and resources linked companies traded lower as the U.S. lawmakers act recklessly with the debt negotiations and put global growth at risk. The Australian dollar traded at a new high.[/R]

Stocks in Australia edged lower as the prospect of the U.S. default knocked sentiment lower. For the first time in ten days since the debt talks gained momentum, U.S. investors began to factor the negative ramifications of the U.S. default.

The U.S. lawmakers, especially U.S. House controlled by the Republican Party, have been cavalier and reckless about the U.S. debt default or a rating downgrade. The reckless lawmakers are also putting the global economic growth at risk.

U.S. has racked up more than $5 trillion of debt during the eight years of George W Bush and passed $1 trillion of spending to avert a banking crisis that was finally approved by the Congress after the election of President Barack Obama.

U.S. total debt now stands at $14.3 trillion and the President Obama needs at least $1 trillion of more debt for each of the next two years.

Most of the increase in debt has gone in paying for wars in Iraq, Afghanistan and Libya and supporting defense lobby and prescription drug plan for the senior citizens.

The ASX 200 index decreased 73.60 or 1.6% to 4,464.80 and All Ordinaries index fell 1.6% or 73.40 to 4,539.20.

In trading, turnover increased to 2.27 billion shares worth $5.28 billion and 250 shares increased, 854 decreased and 320 were unchanged.

The Australian dollar increased to US$1.106 as the prospect of interest rate hike rose after the consumer price index gained more than expected a day ago.

Stock Movers

Energy related stocks closed higher after crude oil flirted near $100 a barrel.

Woodside Petroleum fell 63 cents to $38.92 and Origin Energy decreased 32 cents to $14.77. Santos Limited decreased 24 cents to $12.85.

Retailers closed lower. Wesfarmers decreased 72 cents to $29.37 and Woolworths closed down 20 cents to $27.20.

Coles Supermarket controlled by Wesfarmers said same store sales in the fourth quarter increased 5.2%. Food and liquor sales increased 6.3%. Same store sales at Target increased 2.7%, at Kmart declined 0.1% and at Big W added 2.8%.

BHP Billiton Ltd fell 97 cents to $42.03 and Rio Tinto decreased $1.39 to $81.20. Newcrest Mining Ltd decreased 33 cents to $40.17.

Banks fell on the worries that a sudden rise in inflation may prompt a rate hike at the next central bank meeting. The prospect of the U.S. default also unnerved confidence in the sector.

Commonwealth Bank of Australia decreased 0.8% or 38 cents to $49.44 and National Australian Bank decreased 27 cents to $24.18. Westpac Banking Corp fell 37 cents to $20.65. ANZ declined 29 cents to $20.99.

Macquarie Group fell $1.34 or 4.6% to $27.99 after the investment bank estimated lower first half results compared to a year ago. The company also said that the U.S. debt default would hurt the business globally. The investment bank also kept its forecast of annual earnings of $956 million.

Shareholders at the annual general meeting approved the compensation for chief excutive Nicholas Moore including $2.5 million of stocks.