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ASX200 drops 213 points to 5001 as the market tumbles 4.09 %. On its lows Largest points decline since November 2008. $10bn volume huge! China goes from bad to worse, down 7%. US futures down 410.Looking like a Game of Thrones episode.

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daily 28.4

An awful start to the week. It was always going to be ugly after the 500 point fall from the US markets, but it was even worse than we expected. After a crash at the opening, the market tried hard to rally pre the China opening as hopes of some stability abounded. However, the market cracked again as Shanghai cratered down over 8% as the 3500 line in the sand turned out to be a Maginot line in the sand. Moves from the authorities to support the market were completely ignored. Margin selling in markets is helping to exaggerate falls, and we need to see some leadership from the saviours of the universe, the central bankers, to save the day. As the afternoon wore on mores selling came in as European markets and US will be considerably weaker.

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For months, commentators have been bemoaning the fact that our market was not exactly cheap and there were few bargains around. There is plenty of hyperbole and talk of I told you so from commentators but the speed of the decline and the reasons behind have left most people scratching their heads and counting their losses. The 5000 level is a psychological one and if this is broken we may see 4850 in this correction.

There was nowhere to hide though today with more blood than the Red Wedding episode of Game of Thrones. Banks and financials took things very badly with Westpac (WBC) – 5.96 % the worst hit as they still may need to raise fresh funds. Commonwealth Bank (CBA) – 4.22 % with the rights (CBAR) – 36%.Insurers were mauled as were wealth managers as you would expect. Macquarie Group – 5.82 % were one of the stand outs with Perpetual (PPT) – 7.32 %, Magellan Financial Group (MFG) – 6.38 % and Henderson Group (HGG) – 5.05 %.

In industrials, it was much the same story with defensive stocks getting caught up in the rout. Retail investor favourites like Telstra (TLS) – 3.13 %, Wesfarmers (WES) – 1.86 %, Woolworths (WOW) – 4.1 % and CSL – 2.06 % all suffered with infrastructure stocks Transurban (TCL) – 2.99 %, Sydney Airports (SYD) – 3.44 %, Asciano (AIO) – 2.54 % and Aurizon (AZJ) – 3.33 %

Resources, which will have long avoided, took things very badly as expected.BHP -5.02 % with results to come later this week. RIO – 5.15 % and Fortescue Mining (FMG) – 14.62 % reported today and were cut down to size. Energy stocks were also smacked on oil testing the $40 a barrel level. Santos (STO) – 11.25 % again were picked on as an equity raising just got a whole lot harder and more expensive. Caltex (CTX) – 6.89 % reported today and probably was not a great day to bring out any kind of results. No guidance was given, but the headline numbers were in line with expectations at $374.6m from $162.6m.This did include a number of one-off items.

In China, Iron Ore futures are off 5% or limit down on the local exchange.

In results today:

  • BlueScope Steel (BSL) + 8.58 % was a bright spot. News that management had issued an ultimatum to unions at Port Kembla on jobs cuts and a proposed $200m austerity drive. The company has threatened that the Port Kembla plant will be closed unless the company can achieve the cuts required.
  • Caltex (CTX) – 6.89 % earnings before interest and tax by Caltex’s supply and marketing business were $264 million in the first half, while the company’s sole remaining refinery, in Brisbane, had EBIT of $154 million thanks to stronger Asian refining margins. The dividend was more than doubled to 47 cents and remains fully franked. Again the company said that the climate was ‘challenging; ‘that word again.
  • United Group (UGL) – 4.37% has announced a $236.4 million net loss in 2015 from a $62 million profit a year earlier as the contractor took a swathe of write-downs to clean up its balance sheet.UGL’s statutory net loss was much larger than analysts had expected as the company revealedmore than $300 million of write-downs and charges. The loss included a $27.8 m writedown relating to the slowdown in the resources industry, a $63 m impairment of goodwill, and $26.7 million in charges for restructuring and other costs.
  • M2 Group – 3.92 % has announced a $73.7 million net profit for the year ending June 2015 and declared a 17¢ per share fully franked final dividend. The result was largely in line with analyst expectations.
  • APN Outdoor (APO) + 12% bucked the trend today following a great set of numbers and the advantages of moving the billboards company to large format digital developments. Revenue up 25% to $136.3m NPAT of $12.9m with increased market share and 12 elite screen approvals in 2015.However the most important thing for investors is the outlook statement. A rare one this season and the company has increased its forecast by mid-teens per cent above the prospectus forecasts. Good news indeed and shows the company is benefitting from an increased ad revenue at the expense of TV and other traditional sources.

In takeover news Affinity Education (AFJ) + 5.56 % has announced that it has done a deal with Anchorage Partners to see the entire business and hand back 90 cents to shareholders. This is a blow to suitor G8 Education (GEM) – 3.61 % and may lead them to up the offer.

vix 24.8

The US ‘VIX’ is one of the few winners from the rout!

Meanwhile in Asia it was nothing short of a shocker. The Chinese markets went straight through the supposed line in the sand, and despite authorities trying to underpin the market, there was a limit down day at around 7 %.Japan also joined in with a 4.6% fall, Crude Oil dropping through $40 to $39.16 and Hong Kong down 4.68%.

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The Chinese market in Shanghai

Clients of mutual and exchange-traded funds had pulled $78.8 billion from U.S. shares in the first seven months of 2015, more than in any full year since at least 1993.One leading index that a lot of traders follow is not the Dow Industrial but the Dow Transport Index. This has been signalling problems for some time.

Commodity prices have been showing this global glut for some time too.

Looking at the GDP growth of China as displayed above we can see how much of that growth has been based on financial services and how the unravelling of that sector will hurt their real economy.

Early calls for Europe FTSE down 206 DAX down 410 CAC down 160 S to play catch up tonight but some Central Bankers may be out and about spruiking the market. Not sure we believe them anymore. We could see a rebound if the Dow does not fall 400 odd. We shall see.

Have fun

Clarence

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Get a Global take on things at www.ntmarkets.com

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