United States
US markets were sharply lower on Monday as slowdown fears continued, and investors feared they had misread soft landing theme that had been preeminent earlier in the month. The Dow closed lower by 2.6% a fall of 1,034 points. The Nasdaq composite was down 3.43% and the S&P fell 3% to 5,186.33.
The market turmoil was widespread in the worst selloff for 2 years, the broader Russel 2000 fell 3.33% to 2,039.16. In individual stock moves, Nvidia fell 6.4% with reports that their next generation AI chip may be delayed. Apple was lower by 4.8% with news on the weekend that Berkshire Hathaway had cut its exposure to the company. Amazon fell 4.1% to US$161.02.
With the economy now front and centre of investors minds attention will turn to weekly jobless numbers that are due on Thursday. This volatile number does not usually have a big market influence, however, will now in this nervous environment. Service PMI’s out of the US today were reported at 55 slightly lower than was expected. The CBOE volatility index the VIX exploded on the day finishing the day at 38 up 15 points it had hit a high of 65 earlier on the day. This move in the VIX is the highest since the beginning of COVID. Traders are now building a full 50bps cut in the US rates after the September meeting. The 3-month SOFR (US 3-month benchmark rate) moved down 9bps to the equivalent of 5.13% The yield curve shifted on the day with the 2-year Treasury bond yp 3bps to 3.90% whilst the 10 year fell 2 bps to 3.78%. The EURUSD continued its advance to be at 1.095.
Europe
European shares were similarly lower across the board on Monday. The markets all closed lower but had moved off lows that occurred earlier in the day. The FTSE fell 2.04% to close at 8,008.23 and The German Dax was lower by 1.82%. There was no specific European reason for the dramatic selloff with investors concerned around growth and the large falls in Asia. The Euro Stoxx 600 fell 2.17% to 487.05 and the CAC fell 1.42% a fall of 103 points to 7,148.99.
In some positive new the region had Purchasing Manager Indexes for Services released showing demand for services had increased but at a lower pace from previous months, the UK index rose to 52.5. Yields from government bonds were unchanged on the day.
Australia
The ASX looks set to open lower once again this morning, with ASX200 futures down -0.35%. The ASX200 declined by 3.7% on Monday, following cues from the US market and substantial selling in the Asian region. Global investors are concerned about a potential US economic recession. Today’s drop adds to the three-day decline since Thursday’s peak, which now stands at 6.1%.
The market opened 1.8% lower and continued its downward trend throughout the day. Increased selling in the afternoon suggests that margin calls may have been triggered and that larger investors were adjusting their exposures into the close.
All sectors experienced losses, with information technology being hit the hardest, down 6.62%. The energy sector also suffered, with oil prices contributing to a 4.32% decline. Woodside’s stock price fell 3.6% to $26.48, while Santos dropped by 4.96%. There were reports that Woodside may struggle to get environmental approval from the WA government for their proposed Browse development in the northwest shelf. The material sector was relatively resilient due to Iron Ore gains in Asian trade. Rio’s stock ended down by only 0.06%, a decrease of 7 cents to $118.68. BHP also declined by 2.07% during the market-wide sell-off.
Financials mirrored the overall trend, falling by 4.98%. Both CBA and Macquarie saw drops of more than 5%, while ANZ fell 4.46% to $27.43. The widespread exit from stocks resulted in the market’s worst day in four years.
Japan felt the fear gripping global equity markets most intensely, with its index closing lower by 12.40%. This was the biggest fall in Japan since the 87 crash. The Korean and Taiwanese markets also experienced significant declines, both exceeding 8%. Additionally, the AUDUSD currency pair was affected by the risk-off sentiment, falling to 0.645 on Monday. Today brings the all-important RBA interest rate decision and commentary around their view of the economy.
Commodities
Oil pared larger losses during the day to finish slightly lower, West Texas crude was down -0.79% to US$72.94, Brent was similarly lower by 0.66%. Oil had fallen as much as 2.5% in earlier trade but some optimism that OPEC may cut production if a slowdown occurred saw buyers in the market. Copper was lower again on the LME finishing little changed at US$9,055.
Bitcoin collapsed over 8% to be trading at US$53,768, having fallen below US$50,000 earlier in the session. The flight from risk assets particularly hurt the cryptocurrencies today.
Economic Calendar
AU – ANZ-Indeed Monthly Job Ads. (Jul) 11.00am
- RBA Interest Rate 2.30pm
- RBA Press Conference 3.30pm
US -Balance of Trade (Jun) 10.30pm
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
