Afternoon market insights: Spain gives market jitters

The Australian market fell today after negative leads from Europe and the United States overnight. The S&P/ASX200 fell hard immediately after the morning bell then slowly clawed back the losses to finish about half a per cent down. The negative sentiment in world financial markets overnight was driven by renewed sovereign debt worries in Europe led by Spain (see more details at the end of this report).

All Australian industry sectors fell except the telecommunication services and A-REIT sectors, which both recorded a modest rise.

The S&P/ASX200 was down 0.43% to 4304.90. The All Ordinaries Index was also down 0.45% to 4384.40.

The day’s winners

Linc Energy (ASX: LNC) Link’s share price was up 22.15% to 1.307 at 3.15pm. It had soared up by more than 37% this morning soon after announcing it had formed a joint venture to produce gas in China. The Brisbane-based company is produces underground coal gasification (UGC) and gas-to-liquids (GTL) technologies. It will partner with Hong Kong listed Golden Concord Holdings (GCL) to commercialise fuel using its technology in China, the company said in a statement to the ASX.

Energy Resources of Australia (ASX: ERA) was up 7.66% to $1.405 at 3pm. Energy Resources is one of the largest uranium producers in the world. Its ranger uranium mine is surrounded by Kakadu National Park in the Northern Territory, 230 km east of Darwin. Rio Tinto owns about 68% of ERA.

The day’s losers

Energy World Corporation (ASX: EWC) fell 7.56% to $0.55 by 3.15pm today after falls last week. EWC made a statement to the ASX on April 11 saying some articles in the Australian media concerning the company’s LNG equipment purchases were inaccurate, false or misleading. EWC is an energy company engaged in the production and sale of power and natural gas in Asia and Australia.

Intrepid Mines (ASX: IAU) was down 5.26% to $0.72 at 3.15pm. Brisbane based, Intrepid Mines is an international gold miner and exploration company with operations in Indonesia. Intrepid has not made any announcements to the ASX in the last week.

Sector movers

The strongest sector was the S&P/ASX 200 Information Technology (Sector), which was up 0.57% to 1161.90.

The weakest sector was the All Ordinaries Gold (Sub-Industry) index, which was down 2.18% to 5889.8 at 3.10pm.

Currency

The Aussie dollar was down today. One Australian dollar was buying $US1.0317 at 2.20pm.

Asian markets

Asian financial markets fell as commodity prices dropped and the euro fell following the negative lead from Europe. The Bank of Korea cut its growth estimate and the Chinese yuan devalued as China doubled the currency’s trading band against the dollar. The trading band is the range the Chinese central bank allows the currency to float freely to market forces. The yuan dropped 0.28% to 6.3205 per US dollar. The MSCI Asia Pacific Index dropped 0.8% as of 11:22 a.m. in Tokyo.

Japan’s NIKKEI 225 was down 1.49%, or 143.60 points, to 9494.39 at 3.20pm AEST.

Hong Kong’s Hang Seng was also down 0.70% or 144.68 points to 20556.40.

Spain’s impact

Affecting the all markets, the Spanish government will try to borrow more money from nervous bond investors tonight in the latest Spanish bond auction. A bad result could see stock markets react negatively all over the world tonight.

“If Spain’s yields continue to rise, then they’re going to get to a point where they may well need some form of assistance, as Greece did,” Imre Speizer, a strategist in Auckland at Westpac told Bloomberg.

The Euro fell to its lowest value compared to the British pound since September 2010 after the cost of insuring Spain’s debt against default reached a new record high.

“The euro does look like it’s vulnerable to breaking down a lot further in the short term,” said Speizer.

Tonight (Australian time) Spain will attempt to sell 12-month and 18-month bills. Klaas Knot, a member of the European Central Bank (ECB) governing council, said on April 13 that he doesn’t see a “good reason” for the ECB to resume government bond purchases. “I think there has been an overreaction to the unfortunate communication surrounding Spain,” Knot said in Amsterdam.

Jaime Garcia-Legaz, Spain’s deputy economy minister, said in an interview on Friday that the ECB should “step up purchases of bonds.” If the ECB buys bonds the interest rate price will go down for the Spanish government.

The financial markets will be watching the result in Madrid very carefully.

Spain will again go to the market with auctions of more of its debt this Thursday night (Australian time). The Thursday bond sales will be for 10 year and two year bonds.