The ASX had its worst day since 1987, despite the US unveiling rate cuts and a $1.1 trillion stimulus program

President Donald Trump with Federal Reserve chair Jerome Powell (Photo by Jabin Botsford, The Washington Post via Getty Images)
  • ASX futures pointing to a modest 1% rise on Monday were quickly thwarted when the opening bell sounded, falling more than 7% in the first ten minutes of trade.
  • It finished down 9.7%, its worst day on record.
  • It comes after the US Federal Reserve announced a 1% cut in interest rates and $US700 quanitative easing program.
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As usual, the Australian share market looks set to take its cues from across the Pacific.

When the ASX 200 opened on Monday, it was set to gain around 1.1% in early trade according to ASX Futures, and after the US Federal Reserve – the American equivalent of the RBA – announced it had slashed interest rates by a full percentage point to bring them close to zero.

Rather than rally on the news, US Futures immediately plunged, with the Fed’s messaging perhaps only cementing the severity of the downturn. With it, the ASX’s fortunes appeared to also quickly reverse, with more than 7% wiped off the index in the first 10 minutes of trade. By the end of the session, 9.7% had been wiped off the index, its worst single-day fall since 1987.

That’s despite it being the kind of dramatic cut that US President Donald Trump has long been pushing for, saying the decision overnight made him “very happy”. On top of that, US Fed Chairman Jerome Powell also announced the central bank would buy an additional $US700 billion ($1.13 trillion) worth of government bonds, also known as quantitative easing (QE).

The stimulus package is intended to soften the impact of the coronavirus outbreak, which has sent markets into a spin and threatens to slash economic growth.

“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the central bank said in a statement overnight. “Global financial conditions have also been significantly affected.”

However, judging from how markets reacted on Monday, it’s done anything but.

Such large dramatic swings are certainly becoming a trend. Last week, the ASX was battered by intra-day swings of almost 10%. The index finished almost 700 points lower over five days, despite regaining more than 4% on Friday.

It followed a similar pattern on Wall Street, with all major US indices surging nearly 10% on Friday to cut the week’s losses in half. Despite that final rally, both Wall Street and the ASX 200 find themselves in the throes of a bear market.

It’s unlikely in the short term that even the latest stimulus package will put an end to that volatility.