Australian equities are expected to plunge deep into the red today as global markets are crushed and fears grow over a global recession.
Australian equities are expected to plunge deep into the red today as global markets went into an overnight slump and fears mount that attempts to contain inflation could lead to a global recession.
Wall Street struggled this weekend and again overnight seemingly amid panic that the Federal Reserve will raise interest rates much faster and higher than previously expected.
The fear is that if interest rates rise too quickly, the public will be unable to spend money on other things, leading to a recession next year.
The Australian stock exchange has now been closed for three days because of the long weekend. But it is expected to feel the bite in a big way today — with a dip of more than 4 percent.
This follows an overnight horror day on Wall Street due to rising inflationwhich rose to 8.6 percent in the United States and led to a massive sell-off worldwide.
Global stocks, oil prices and bitcoin all collapsed amid heightened fears of a recession triggered by runaway inflation.
The Dow dropped more than 800 points before regaining some ground. Overall, the S&P 500 fell 3.4 percent as investors panic over fears the Federal Reserve will hike rates even faster.
All in all, the top 10 companies of the S&P 500 have lost more than $1 trillion in market capitalization in four days, MarketWatch reports.
Major tech companies Apple, Microsoft and Amazon took the brunt overnight, but the pain was widespread: Only five of the index’s 504 stocks won. At one point in the day, every S&P 500 stock was in the red at the same time.
The index of the largest companies in the US fell 21.3 percent in the first 112 trading days of 2022, the worst start to a year since 1940.
Australian tech giant Atlassian went into the red -9.5 percent, Tesla -7.4 percent and Apple -3.5 percent.
All this means pain for the Australian Stock Exchange.
“The hangover from higher-than-expected inflation in the US continues to hurt markets agonizingly as it wipes out hopes that the US Federal Reserve might be able to take its foot off the pedal on rate hikes,” noted AJ. . Bell investment director Russ Mold.
Horror start of the week
US and European stocks had already plunged on Friday after inflation data, with Asia following Monday.
European stock markets extended losses from before the weekend, while London also took a hit from data showing the UK economy contracted for the second month in a row in April.
Wall Street opened sharply lower, with the blue-chip Dow losing about two percent and tech-heavy Nasdaq losing about three percent.
World oil prices, whose rise has contributed massively to rising inflation, fell more than one percent as the high cost of living raises recession expectations.
The possibility of more Covid restrictions in China’s largest cities also weighed on crude futures, as the country is a major oil consumer.
New outbreaks of the coronavirus in Shanghai and Beijing have prompted authorities to reintroduce containment measures.
Bitcoin tumbled to a 18 month low below $24,000 while investors shied away from risky assets in the face of brutal sell-offs in global markets.
The unit was also hit hard by news that cryptocurrency lending platform Celsius Network has paused withdrawals, citing volatile conditions.
“It’s not terribly surprising to see such a strong downturn as we’ve noticed an increased correlation between traditional stocks, which have also tanked recently, and the cryptocurrency market in recent years,” noted XTB market analyst Walid Koudmani.
Patrick O’Hare, analyst at Briefing.com, said the crypto market carnage “raises concerns about the growth outlook because of the diminished wealth effect that also includes falling stock and bond prices.”
Investors were surprised Friday when data showed US inflation rose to 8.6 percent in May, the fastest pace in more than 40 years, as the war in Ukraine pushed energy and food prices further.
The reading has sparked heated speculation that the Fed will consider a single 75 basis point rate hike at its meeting this week.
With the central bank being forced to be more aggressive, there is heightened concern that the US economy could plunge into recession next year.
“The market is now thinking a lot more about the fact that the Fed is raising interest rates sharply to get on top of inflation and then having to cut back when growth falls,” said Stephen Innes of SPI Asset Management.
However, the US dollar gained against major rivals, benefiting from its investment haven status and expectations of aggressive rate hikes from the Federal Reserve.
The US currency hit a 24-year high against the yen before pulling back as it broke above 78 Indian rupees for the first time. It jumped one percent against the pound.
— with AFP
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