STOCKS CRUSHED: 'A classic market panic'

Tens of billions of dollars in value were lost on the Australian stock market today with a resources-led sell-off dragging the market down more than 3.8%.

Australian mining stocks were smashed in the fallout from the plunge in the share price of global mining giant Glencore. But all 10 sectors on the ASX were in the red.

The ASX 200 index was below the key support level of 5000, at 4,918.40, down 195.09, or -3.82%.

Today’s session makes it into the top 20 one-day losses in ASX history. Michael McCarthy, chief markets strategist at CMC Markets, described the action as “classic share market panic”.

Investors were reacting to a brutal session on Wall Street where the S&P 500 closed down 2.6% follow concerns about the timing of interest rate rises and how China’s slipping economy might impact this.

Stocks fell across Asia. In Japan, the Nikkei 225 was down almost 4%.

Overnight in London, Glencore shares lost 30% to all-time lows over concerns at its debt level, demand from China and the impact of low commodity prices.

Local resources stocks, also under pressure from lower prices and weaker demand from China, have fallen harder than the general market which fell through the ASX 200’s 5000 support level.

BHP, the world’s biggest miner, has lost almost 6% to $21.79 in today’s trade. Rio Tinto was down more than 4% to $46.61.

Both mining and energy stocks have been dragged down about 5%. And a string of mid cap resources stocks are joining the big companies in the sell off.

BlueScope Steel has dropped more than 9% to $3.47, Iluka Resources is down 8% to $5.98, Santos 7.8% to $4.34, Origin energy more than 8% to $6.23 and LNG ,ore than 7% to $1.27.

In line with the decline in its share price in London, Glencore shares have been obliterated in Hong Kong trade today, falling 27.69% to HKD 8.88.

It also takes the decline from the 2011 high of HKD 68.20 to 88%.

While Armageddon hasn’t yet arrived at Glencore it might be around the corner.

There are two basic reasons for this. Two Horsemen of the Glencore Apocalypse, if you will: Copper and debt.

Business Insider’s Jim Edwards has a basic guide to Glencore’s finances, culled from its own statements, which explain the trouble the company is in here.

IG markets analyst Chris Weston points out that it’s not often that one single corporation can influence other markets, but that’s what we are seeing with Glencore.

“There is clearly a sustained and ferocious attack on its equity and it’s unclear whether this is a genuine view that the company is not going to be around in six months,” he said.

“However, a simple look at some of the more liquid debt issuance shows fixed income investors see Glencore as a high yield play and not investment grade.

“The cost to protect against bond default (Credit Default Swaps or CDS) is skyrocketing and, in turn, this is hurting the equity – all leading to the perception we are going to see counterparty risk increase and forced selling from the Glencore trading desk. There is a growing feedback loop between Glencore and the broader commodity trade.”

According to Weston, given what we have seen from Glencore today and the idea that commodities could come under further pressure, all eyes should be on price action in copper.

“Technically copper is oversold, but that is a reflection of the power behind the selling. The 24 August lows ($2.22p/lb) are firmly in sight, although the former May downtrend may come into play.”

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