Brutal day for stocks sees ASX fall into correction as global markets crater

  • The Australian share market was pushed into official correction by a wave of selling from Wall Street.
  • ASX200 lost 164.90 points or 2.83% today, its lowest point since October 2017.
  • All the gains of the calendar year have been lost.

The ASX was hit by a wave of selling from Wall Street, pushing the local market into an official correction and wiping out the gains of the last year.

The local market hit a 12-month low, with the ASX200 sinking below the the key support level of 5800. At the close the index was at 5,664.10, down 164.90 points or 2.83%.

During the session 3.5 billion shares were traded, worth $7.8 billion, says CommSec. 234 stocks closed higher, 1,029 finished weaker, while 309 ended unchanged.

The ASX200 entered a technical correction, after a decline of 10.4% in just 40 trading sessions, for the first time since early 2016.

In Japan, stocks took a hard hit. In early trade, the benchmark Nikkei index was down more than 3%.

Asian stocks entered a bear market, falling over 20% from the highs struck in late January this year.

“The fear is palpable in stock markets as the moment as the buying dried up and traders and investors head for the exits,” wrote Greg McKenna in his morning note. “It’s going to be a big few days.”

Wall Street plunged overnight, wiping out gains for the year overnight, as the corporate earnings season failed to calm nerves about rising rates and the prospect of slowing global economic growth worldwide.

The S&P500 fell 3.1%, the Dow Jones 2.4% and the tech-heavy Nasdaq 4.4%.

On the ASX, the big four banks lost more than 2%, with the ANZ closing down 2.55% to $24.80.

AMP dropped almost 25% to $2.50 as it announced the sale of its life insurance business.

BHP was down almost 4% to $30.80 and Fortescue Metals 5.7% to $3.64.

Qantas fell 4.6% to $5.36 despite announcing a record revenue first quarter.

Among retailers, Super retail fell 10.2% to $7.48, Harvey Norman $5% to $3.16 and Myer 3% to $0.475.

Infant formula make Bellamy’s was down 6% to $=$7.50.

“A tough day in the market for some, yet for others will be relishing these conditions,” says Chris Weston, Head of Research at Pepperstone Group.

“Specifically, those participants who like trading from the short-side will be looking at the deterioration in order book dynamics and seeing few buyers, amid a wave of selling and a capital exodus out of credit and equities and into cash, US Treasuries, German bunds, the JPY, and to a lesser extent gold.

“The short volatility (vol) trade has been unwound at a sharp pace, and this has thrown additional weight to the notion that the ‘buy the dip’ mentality, held over the past two years, is over and we have entered a new paradigm.

“The lack of any counter-rally in the ASX200 backs the idea that traders see heightened risks that we could see stocks gap lower tomorrow — asset price deflation if you will.

“The question of what is behind the moves leads me to think the elevated vol trade has further to play out, as there seems no clear circuit breaker.”

Nick Twidale, Rakuten Securities Australia’s COO, says the same combination of global geo-political and trade risks continues to weigh on markets and the earnings season keeps producing mixed results with the downside surprises superseding the positives in the current environment.

“There was no real fresh catalyst for yesterday’s moves, but investor confidence is hitting lower levels and with no real new positive news, the downside trend continued. Haven assets gained across the board with the Dollar and Yen both having strong days,” he says.

“The exception to the usual rule was the Loonie which had a sharp topside correction after the Bank of Canada raised rates as expected and then delivered a more hawkish outlook.”

Jonathen Chan at CMC Markets says the stock rout in the US could be distressing to global investors, however a sharply lowered US bond yield may be beneficial to the bigger picture in the long run.

The US 10 year bond yield fell sharply overnight to around 3.10% compared to the recent peak at 3.248%.

“A temporary relieve from a higher borrowing cost could allow investors to reposition in the financial markets with fewer tensions,” he says.

“Investor sentiment may be vulnerable in the short run but a correction could also mean a chance to start afresh.”

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