Wall Street suffered its worst trading day of 2019 as investors took notice of a warning sign for a potential US recession, and Australia’s market is set to follow.
This is a new record for the Dow, as it was only last week that its 768-point drop was considered its “worst” session of the year.
The benchmark S&P 500 and tech-heavy Nasdaq indices also fell off a cliff, dropping 3 per cent each.
Market snapshot at 7:00am (AEST):
ASX SPI futures -2pc at 6,403, ASX 200 (Wednesday’s close) +0.4pc at 6,596
AUD: 67.47 US cents, 55.95 British pence, 60.56 euro cents, 71.46 Japanese yen, $NZ1.05
US: Dow Jones -3.1pc at 25,479, S&P 500 -2.9pc at 2,841, Nasdaq -3pc at 7,774
Europe: FTSE 100 -1.4pc at 7,148, DAX -2.2pc at 11,493, CAC -2.1pc at 5,251, Euro Stoxx 50 -2.2pc at 3,284
Commodities: Brent crude -3.8pc at $US59/barrel, spot gold +1pc at $US1,516.09/ounce, iron ore +1.6pc at $US90.72/tonne
Bond markets warn of recession
Investors fled from the stock market due to bond markets signalling an upcoming US recession.
The warning came from a phenomenon called the inverted yield curve — which has happened only five times since 1978 and has been the precursor for economic recessions 22 months later, on average, according to research from Credit Suisse.
For the first time since 2007, America’s long-term interest rates — on its 10-year Treasury bonds, which briefly fell below 1.58 per cent — were lower than the short-term rate from its two-year bonds.
The last time this happened was shortly before the global financial crisis more than a decade ago.
The US 30-year bond interest rate also plunged to a record low 2.02 per cent.
US President Donald Trump has blamed the Federal Reserve for the overnight market carnage.
“CRAZY INVERTED YIELD CURVE!” Mr Trump tweeted.
“We should easily be reaping big Rewards & Gains, but the Fed is holding us back. We will Win!”
The US President also said “we are winning, big time”, referring to US-China trade war.
“China is not our problem”, but rather “our problem is with the Fed” and its interest rate policy,” he said.
Worse-than-expected economic figures from China also contributed to the market panic — and fears of a global economic slowdown.
China experienced its weakest factory output in 17 years, with its latest official figures showing that industrial production grew by an annualised 4.8 per cent in July — down from 6.3 per cent in the previous month.
“The argument that the weaker the Chinese numbers the stronger will be the domestic policy stimulus is starting to wear a bit thin, especially given the soft credit numbers that preceded yesterday’s release,” said NAB’s head of foreign exchange strategy Ray Attrill.
In addition, Europe’s largest economy contracted in the June quarter — Germany’s GDP slipped 0.1 per cent, and it is on the verge of falling into a recession.
ASX to plunge
Australian shares are set to tumble, following the sell-off across US and European markets.
The Australian dollar, meanwhile, has fallen sharply against major currencies, buying 67.46 US cents.
The local currency “will remain under downward pressure as participants assess the rising prospects of a global recession, and more pressure for a ‘growth insurance’ interest rate cut by the RBA [Reserve Bank],” said Commonwealth Bank’s chief currency strategist Richard Grace.
In local economic news, the Bureau of Statistics will release its latest job figures at 11:30am (AEST).
ANZ and NAB are expecting the unemployment rate to lift to 5.3 per cent.
Meanwhile, Reuters-polled economists are forecasting 14,000 new jobs will be created in July.
As investors fled from the stock market, the price of spot gold has jumped to $US1,516 an ounce.
Brent crude oil has plunged to $US59 per barrel.
Source @ ABC News