Australia’s share market has joined Wall Street in a correction, falling more than 10 per cent since their recent record highs, while the Australian dollar plumbed a fresh 11-year low.
- The benchmark Australian ASX 200 share index closed down 3.25 per cent
- ASX has had a 10 per cent “correction” in the space of just a week — the biggest weekly decline since the global financial crisis
- The value of listed companies in Australia is down more than $240 billion from record highs last Thursday
In the space of just a week, the ASX 200 has gone from a record closing high of 7,162 last Thursday to a low of 6,427 in today’s session.
At the close, the ASX 200 was down 3.25 per cent at 6,441 taking the losses to more than 10 per cent since that record, marking the beginning of what traders call a “correction”.
To enter a “crash” or “bear market” share prices will need to lose another 10 per cent from there.
Looking at the broader market, represented by the All Ordinaries index, Australian shares have lost more than $240 billion in value since their highs last week.
It is the biggest weekly drop for both Australian and US share markets since October 2008, during the peak of the global financial crisis market chaos.
The Australian dollar has also again plumbed financial crisis depths, falling to a fresh 11-year low of 65.17 US cents during afternoon trade.
At various points during the session the market has attempted to bounce back, however percentage falls since the open remained in the high-2 to low-3 per cent range as buyers have been in short supply.
All sectors of the market finished in the red, but technology, mining, industrial and energy stocks were the worst hit.
The biggest falls among the top 200 companies were Harvey Norman (-14.1 per cent), Gold Road Resources (-14 per cent) and Clinuvel Pharmaceuticals (-10.8 per cent).
A late surge in some firms left 10 out of the top 200 companies in the black by the end of the day.
‘The direction ahead for the economy is straight down’
Wall Street’s main indexes plunged more than 4 per cent overnight Thursday, their worst trading session since 2011.
The major share indices have slumped more than 12 per cent from recent highs confirming US shares are deep into a correction and potentially heading for a bear market.
Global shares are now at a four-month low, having retreated from record highs at a rapid pace.
The indexes have been hit by their steepest weekly pullback since the 2008 global financial crisis, as new coronavirus infections reported around the world surpassed those in mainland China.
While shares are falling, demand for government bonds is at record highs, pushing interest rates on them to record lows.
The yield on 10-year Australian Government bonds was just 0.82 per cent, while returns on 10-year US Treasuries were below 1.25 per cent.
“Stocks and bonds say we’re doomed,” Chris Rupkey, the chief financial economist for MUFG Union Bank, told Bloomberg.
“Anyone who has a better idea for what lies ahead please let us know because right now the direction ahead for the economy is straight down.”
Debt kills in coronavirus contagion
Coronavirus looks set to cause deep global economic disruption, and those companies that have binged on cheap debt are the ones least likely to survive the crisis, writes Ian Verrender.
OANDA’s senior market analyst for the Asia-Pacific region, Jeffrey Halley, said that while much remains unknown, traders have finally begun to appreciate the scale of global economic disruption that is imminent.
“What is clear, is the potential supply and demand shock that may be about to sweep the global economy,” he warned in a note.
“That likely justifies the equity sell-off of this week with a harsh reassessment of delusional valuations in some cases.”
Mr Halley said that while central bank rate cuts and money printing may help somewhat on the demand side, they would do nothing to avert disruptions to the supply of goods and services.
“If global supply chains start freezing up, due to a lack of materials or credit, or both, no amount of rate-cutting will unlock that,” he argued.
“If SME’s [small to medium enterprises] can’t get paid for their invoices, or pay theirs, or secure raw materials, or transport goods, the net effect is shuttered businesses and job losses.”
‘It’s becoming more global’
CommSec market analyst Steven Daghlian said that the falls have been exacerbated because markets were previously so exuberant.
“We had quite a strong start to 2020, and 2019 was actually the best year for the share market in a decade when we were up about 20 per cent, so we are coming off those high levels and that perhaps is making these losses worse than they would’ve been otherwise,” he told ABC News.
“This is obviously a very different situation than the global financial crisis and back in October 2008 … the Aussie market fell in the order of 15.5 per cent in one week.”
US traders were particularly rattled by the Centres for Disease Control and Prevention confirming a COVID-19 infection in California in a person who apparently had no relevant travel history or exposure to another known patient.
“It’s not a China thing, it’s becoming more global … in terms of the spread of the virus and its economic impact,” Willie Delwiche, investment strategist at Robert W Baird in Milwaukee told Reuters.
“There’s a lot of uncertainty right now about where that impact lands … it’s also possible that forecasts are over-reacting to the downside.”
‘We haven’t yet hit peak panic’
However, AMP Capital portfolio manager Dermot Ryan said that there is likely to be further panic and downside before markets settle down.
“As so far this has all been driven by offshore infection rates, further escalations over the weekend may see another leg down next week,” he wrote in a note.
“We think the market is late reacting to coronavirus which has been spreading across borders for over a week.
Delayed coronavirus reaction
Share markets have roared blithely higher as the coronavirus outbreak worsened in China, but that complacency appears to have been punctured in the biggest sell-off for two years, writes Ian Verrender.
“We haven’t yet hit peak panic and there may be another leg down for markets.”
Mr Ryan said the spread of coronavirus through Europe and North America will cause further stress on markets, as will the increasingly likely declaration of a pandemic, which he expects from the World Health Organisation (WHO) this weekend.
However, he said the market mayhem also presented opportunities for calm investors.
“Bottom line is we are probably not at peak panic yet, but investors should start thinking about what they would like to add to their portfolios as opportunities present themselves,” Mr Ryan added.
By the close, both the S&P 500 and Dow Jones Industrial Average had slumped 4.4 per cent, while the tech-heavy Nasdaq fell even further, plunging by 4.6 per cent.
European markets had also dropped sharply earlier in the session, with the EuroStoxx 50 off 3.4 per cent and London’s FTSE 100 down 3.5 per cent.
More on the coronavirus outbreak:
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Australian shares have edged moderately higher, after bargain-hunting investors shrugged off coronavirus worries to drive a strong Wall Street recovery.
Market snapshot at 8:05am (AEDT):
- ASX SPI futures flat at 6,856, ASX 200 (Monday’s close) -1.3pc at 6,923
- AUD: 66.9 US cents, 51.48 British pence, 60.48 Euro cents, 72.71 Japanese yen, $NZ1.035
- US: Dow Jones +0.5pc at 28,400, S&P 500 +0.7pc at 3,249, Nasdaq +1.3pc at 9,273
- Europe: FTSE 100 +0.6pc at 7,326, DAX +0.5pc at 13,045, CAC +0.5pc at 5,833, Euro Stoxx 50 +0.6pc at 3,662
- Commodities: Brent crude -4.2pc at $US54.24/barrel, spot gold -0.9pc at $US1,576.32/ounce, iron ore -5.4pc at $US80.38/tonne
By 2:15pm (AEDT), the ASX 200 index had risen by 0.5 per cent to 6,956 points.
It came after the local bourse experienced its second-worst trading day since the year began.
The worst performing stocks included Origin Energy (-3.4pc), Oil Search (-2pc) and Cooper Energy (-1.4pc) as utilities and energy stocks were hit hard by tumbling oil prices.
Consumer stocks were among the best performers including Harvey Norman (+7.3pc), JB Hi-Fi (+5pc) and Webjet (+3.2pc).
Meanwhile, the Australian dollar was steady at 66.9 US cents, which is near an 11-year low.
Buying the dip
Global markets fell sharply last week over worries about the rapidly spreading coronavirus and its impact on the world economy.
However, those concerns were not evident on US markets overnight.
The Dow Jones index closed 144 points (or 0.5pc) higher at 28,400 points. But the industrial-skewed index has some way to go before recovering from its 600-point drop last Friday.
The benchmark S&P 500 and tech-heavy Nasdaq indices lifted by 0.7 and 1.3 per cent respectively.
“Traders are looking for value where they can,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.
“A large part of what we’re seeing in the market today is bargain-hunting in anticipation of a return to stimulus from the Chinese Government.”
Helping the mood on US markets was a decision by China’s central bank to inject 1.2 trillion yuan ($260 billion) of liquidity into its market via reverse repurchasing agreements.
But the Shanghai Composite nonetheless plunged by 7.7 per cent (or $628 billion) yesterday — its first day of trading since China closed equity, currency and bond markets on January 23 for the Lunar New Year, a holiday that was extended because of coronavirus.
Wall Street also recovered thanks to surging technology share prices and a surprise rebound in US factory activity.
Manufacturing expanded in January after five straight months of contraction, according to figures from the Institute of Supply Management, indicating that a slump in business investment may have bottomed out.
The ISM said its index of national factory activity increased to a reading of 50.9 last month, the highest level since July. A reading above 50 indicates expansion in the manufacturing sector.
A rebound in business investment is critical to keeping the longest US economic expansion in history, now in its 11th year, on track amid signs of fatigue in consumer spending
Spot gold slipped 0.8 per cent to $US1,576.16 an ounce, following a strong performance in January.
“Gold prices slipped as a stronger US dollar and higher equity markets saw investor appetite wane,” ANZ analyst Rahul Khare said.
“There are fears that physical demand is also being impacted by the virus, with retail coin and jewellery demand most certainly taking.”
Iron ore prices also slumped 8.3 per cent to $US80.38 per tonne.
“Fears remains that [Chinese] construction activity will be severely impacted as provinces extend holidays and travel restrictions remain in place,” Mr Khare said.
In addition, oil prices fell sharply to a 13-month low as the coronavirus outbreak curtailed Chinese demand, which may spark potential supply cuts by the Organisation of the Petroleum Exporting Countries (OPEC) and its allies.
Brent crude lost 4 per cent to $US54.35 per barrel.
Oil has also dipped into bear-market territory, having dropped by more than 20 per cent from recent highs.
Independent refineries in China’s Shandong province, which collectively import about a fifth of the nation’s crude, cut output by 30 to 50 per cent in a little more than a week, executives and analysts told Reuters.
Australian shares are recovering some of Tuesday’s heavy losses as overseas investors took a slightly less pessimistic view of China’s coronavirus outbreak and its economic fallout.
- ASX 200 index is up 0.6 per cent at 7,038
- The gains are less than half of yesterday’s 1.4 per cent slide
- Wall Street’s benchmark S&P 500 index had a stronger 1 per cent rise overnight
The benchmark ASX 200 index closed up 0.5 per cent at 7,031 — though the local market still has some way to go before clawing back yesterday’s 1.4 per cent loss, its sharpest fall since the year began.
Around the region, Tokyo’s Nikkei was also 0.7 per cent higher by 4:25pm (AEDT) but Hong Kong’s Hang Seng had dropped 2.3 per cent, having been closed for Lunar New Year during recent negative trading days.
Many of the sectors that were hardest hit yesterday — such as airlines, travel, entertainment and retail — have been posting solid gains today.
However, Treasury Wine Estates backed up a 5.8 per cent coronavirus-related fall yesterday, with a 25.1 per cent slump today, as it announced a significant downgrade to its forecast profit growth.
The company said difficulties in the North American market, which accounts for about 40 per cent of its sales, would lead to earnings growth of 5-10 per cent for 2020, down from a previous forecast of 15-20 per cent.
Treasury is also facing higher production costs as bushfires and drought wiped out a significant part of Australia’s grape crop and the company’s earnings downgrade did not include any forecast on the potential Chinese earnings hit from coronavirus.
The company’s shares closed at $12.50 — their lowest level in around two-and-a-half years.
Wall Street rebounded (somewhat) from the previous day’s heavy sell-off, which saw the blue-chip Dow Jones index tumble by 450 points — its worst trading day in four months.
The Dow closed up 187 points, or 0.6 per cent, at 28,763.
The benchmark S&P 500 and tech-heavy Nasdaq lifted by 1 and 1.4 per cent respectively.
Market snapshot at 9:15am (AEDT):
- ASX SPI futures +0.5pc at 6,977, ASX 200 (Friday’s close) 6,995
- AUD: 67.61 US cents, 51.89 British pence, 61.34 Euro cents, 73.80 Japanese yen, $NZ1.033
- US: Dow Jones +0.7pc at 28,723, S&P 500 +1pc at 3,276, Nasdaq +1.4pc at 9,270
- Europe: FTSE 100 +0.9pc at 7,481, DAX +0.9pc at 13,324, CAC +1.1pc at 5,926, Euro Stoxx 50 +1.1pc at 3,719
- Commodities: Brent crude +1.2pc at $US60.02/barrel, spot gold flat at $US1,566.81/ounce
Pepperstone’s head of research Chris Weston does not think global markets have seen the last of their coronavirus jitters yet.
“It’s been a session where traders have focused less on the coronavirus (2019-nCov) and more on solid US economics,” he wrote in his morning note.
“I still sit in the camp that there is far more to play out in the 2019-nCov scare, and the impact on Chinese economics will be real.
“It’s the duration of the scare which will dictate confidence and the draw on discretionary spending, although most believe the authorities will meet any worsening of economics with a determined fiscal and monetary response.”
Earnings reporting season is gathering pace, with Apple reporting results for the last three months of 2019 after the US markets closed.
The result beat expectations, with revenues of $US91.8 billion up 9 per cent from the same period a year ago.
Investors were also pleased with a higher-than-expected forecast for revenue in the first quarter of 2020, sending Apple shares up more than 2 per cent in extended trading.
However, investors will continue to keep a close watch on Apple’s earnings amid concerns of a disruption to iPhone production as the coronavirus potentially spreads across major markets and production hubs in China.
Brent crude oil lifted to $US59.64 per barrel, while spot gold dropped sharply to $US1,568.87 an ounce.
The Australian dollar has remained weak at 67.68 US cents, having fallen by 1 per cent since the week started.
Global markets have rallied overnight, as fears of further escalation in the US-Iran conflict subsided for now. Wall Street rose and the Australian share market followed that positive lead.
- The ASX 200 closed 0.8 per cent higher at 6,874
- Most major banks and mining stocks rose
- The energy sector and gold miners lost ground
At the close of trade, the benchmark ASX 200 index was 0.8 per cent higher at 6,874.
Most blue chip stocks — such as three of the big four banks, BHP and Telstra — rose, while energy stocks lagged following a retreat in oil prices, with Brent crude falling as much as 4 per cent overnight.
During Australian and Asian trade yesterday, US stock market futures fell sharply, as Iran launched missile strikes on Iraqi bases housing US troops.
Stocks across the region fell, before recovering some of the losses after US President Donald Trump did not deliver an immediate response and tweeted “all is well”.
US futures recovered and Wall Street rose strongly during the session, with the S&P 500 and the Nasdaq hitting fresh record highs, before paring gains into the close.
Market snapshot at 8:20am (AEDT):
- ASX SPI futures +0.7pc at 6,798, ASX 200 (Wednesday’s close) -0.1pc at 6,817
- AUD: 68.70 US cents, 52.45 British pence, 61.84 Euro cents, 74.98 Japanese yen, $NZ1.03
- US: Dow Jones +0.6pc at 28,745, S&P 500 +0.5pc at 3,253, Nasdaq +0.7pc at 9,129
- Europe: FTSE 100 flat at 7,574, DAX +0.7pc at 13,320, CAC +0.3pc at 6,031, Euro Stoxx 50 +0.1pc at 3,424
- Commodities: Brent crude -3pc at $US66.20/barrel, spot gold -1.1pc at $US1,556.35/ounce
Shares in Boeing lost more than 1 per cent, after one of its planes crashed shortly after take-off from Tehran, killing all 176 people on board.
In European trade, stocks rebounded from early losses.
Airlines reroute flights in Middle East
The oil price pullback will be good news for the fuel costs of global airlines, if it lasts, however, higher fuel bills may still be in store.
Qantas, along with international airlines including Germany’s Lufthansa, Air France, Singapore Airlines and Malaysia Airlines have rerouted flights to avoid airspace over Iran and Iraq, due to the tensions with the US.
Airline analysts have told Reuters the longer journey times will increase fuel usage, throw off schedules and add to operating costs.
On Wednesday, Qantas said its Perth to London flight would have an increased flying time of 40 to 50 minutes due to its redirected flight path, and passenger numbers would need to be reduced in order to carry more fuel.