Shares tumble, inflation hits 5%, NAB set to buy Wizard Home Loans: Economy roundup

It appears Australia’s mini sharemarket rally is over. After shares jumped 4% on Monday and 3.9% on Tuesday, investors were starting to think the worst could be over. But a poor night on Wall Street put an end to that.

It appears Australia’s mini sharemarket rally is over.

After shares jumped 4% on Monday and 3.9% on Tuesday, investors were starting to think the worst could be over. But a poor night on Wall Street put an end to that.

The Dow Jones Industrial Average shrunk 2.5% in choppy trade, with falling commodity prices weighing heavily on the market.

Investors are also getting worried about the impact of the slowing economy on corporate profits. Overnight, one of the world’s largest copper producers, Freeport-McMoRan Copper & Gold announced a slide in profits, while technology giant Texas Instruments and chemical company DuPont warned of slowing sales and profits.

Australian investors picked up on this gloomy mood and sent the benchmark S&P/ASX200 index down 2% or 86.8 points to be at 4215.7 points at 11:40am AEST.

In economic news this morning, the consumer price index revealed inflation is running at a whopping 5%, well outside the Reserve Bank’s 2% to 3% target band. The most significant price rises this quarter were for rents (+2.1%), water and sewerage (+12.3%), house purchase (+1.3%), automotive fuel (+2.0%), deposit and loan facilities (+1.9%), overseas holiday travel and accommodation (+4.9%), electricity (+4.6%) and property rates and charges (+6.1%).

Normally, this would have economists predicting a rise in interest rates, but the fact the economy is slowing so quickly means that no-one is really worried about inflation any more. Indeed, more economists are tipping a rate cut when the RBA meets in early November.

In corporate news, National Australia Bank is reported to be just days away from announcing it has purchased Wizard Home Loans, which has been put up for sale by owner GE Money.

It appears NAB will pay around $100 million for the company’s branch network and brand, although the price could rise if NAB decides it wants Wizard’s $12 billion loan book. It is unclear whether Wizard founder Mark Bouris will have a role with the new owners.