Shares plunge 2.75% as global jitters hit: Economy Roundup

The Australian sharemarket has plummeted over 2% today after Wall Street recorded its worst result in over nine months due to a rise in jobless claims.

The benchmark S&P/ASX200 index was down 126 points or 2.75% to 4494.6 at 12.05 AEST, while the Australian dollar has also dropped to US86c.

Westpac shares tumbled 3.2% to $22.38, while Commonwealth Bank shares lost 2.4% to $51.68. ANZ lost 2.9% to $20.79, as AMP fell 1.8% to $0.11.

Overseas, stocks fell in the US due to worse-than-expected results from the labour market. The Labour Department announced claims for state unemployment benefits increased by 8,000 to a seasonally adjusted 480,000 in the week ending January 30.

This was well above market expectation of 460,000. But the department also said non-farm productivity grew by 6.2% in the fourth quarter, after gaining 7.2% in the third quarter.

The jobless news was not received well on Wall Street, where the Dow Jones Industrial Average fell 268.37 points or 2.61% to 10,002.18.

Back home, the Australian construction industry has seen increased performance in January, with its best performance in two years due to good performances in the home building, commercial and engineering sectors.

The Australian Industry Group-Housing Industry Association survey recorded a jump of eight points to 57.7, above the 50-point level separating expansion from contraction.

“The construction industry has started 2010 on a positive note with a solid rise in new business driving growth in activity and a lift in employment,” AIG associate director of public policy Peter Burn said in a statement.

“The improved conditions in January coincided with the reporting of increased tendering opportunities, new contract wins and a further uptake of work stemming from the federal government’s infrastructure stimulus programmes.”

The survey’s measure of house building jumped 10 points to 63.7, in a seventh consecutive month of expansion, while the index of apartment building reached a two-year best to 59.1.

Engineering activity increased by 15.2 points to 57, while new orders grew by 7.4 points to 53.5. The survey’s measure of employment grew by 6.5 points to 59.1.

RBA predicts GDP growth of 3.25%

Meanwhile, the Reserve Bank of Australia has said the economy will grow between 3.25-3.5% in both 2010 and 2011 with private activity to increase this year.

In the RBA’s statement on monetary policy, the RBA said that global improvements and higher commodity prices would ensure continued investment in the resources sector.

“While overall growth in the economy is forecast to be reasonably strong, the appreciation of the Australian dollar that has taken place as the outlook for the resources sector has improved will restrain activity in a number of industries that are exposed to international competition.”

But it also said further rate rises should be expected over the current year, with the cash rate currently at 3.75%.

“The forecasts are based on the technical assumption of a rise in the cash rate over the forecast period, with the assumed path broadly consistent with market expectations as the statement was finalised.”

Underlying inflation is now expected to moderate to reach 2.5% in the second half of the year, with unemployment now expected to peak at about 5.75%.

Airline Virgin Blue has upgraded its pre-tax profit forecasts to $110 million for the current financial year, the company announced in a statement last night.

The company said the forecast was due to an improvement in operating conditions in the first half of the financial year, spurred by a fall in fuel prices to $US92 a barrel.

But while Virgin said it remained optimistic, it also emphasised concerns about the global economic recovery and said domestic travel would continue to put pressure on air fares.

Harvey Norman optimistic about 2010 results

Department store giant Harvey Norman has said it will remain “cautiously optimistic” about the second half of the current financial year, after recording a 6.5% increase in like-for-like sales in the first quarter.

The company recorded sales of $3.27 billion during the six months to December 31, an increase of 4%. January sales had met expectations, the company said, adding that it remains hopeful for future results.

“Sales for the month of January 2010 have met managements’ expectations and we remain cautiously optimistic about the next five months,” chief financial officer Chris Mentis said in a statement.

As reported in The Australian, Rio Tinto has said rising unrest in the resources sector could eventually affect iron ore mines.

Ore chief Sam Walsh has said in an internal memo that increased industrial activity due to the new Fair Work laws could affect the company. Walsh said the strike at its Woodside plant was “disappointing” and “unnecessary”, and said the Construction Forestry Mining and Energy Union had encouraged the activity.