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Australian Stocks Plunge Amid Trade War and Recession Fears
Early Monday trading witnessed a dramatic downturn in Australian shares, with over $160 billion in value evaporating before a modest recovery took place. This slump occurred amidst growing apprehension of a significant trade conflict and an impending global economic recession. Investors reacted sharply to escalating global uncertainties, triggering widespread selling pressure on the Australian stock market.
ASX 200 Index Suffers Steep Decline
The benchmark S&P/ASX 200 index experienced a sharp decline, plummeting by more than 6% in the initial minutes of Monday’s trading session. This rapid descent pushed the index below the 7,200-point level, reaching valuations not seen since late 2023. The substantial losses reflect deep market unease regarding the economic outlook.
Investment Portfolios Impacted by Market Downturn
The extensive price decreases diminished the value of numerous investment and superannuation portfolios holding equities. This erosion of value compounded losses from the previous week, which followed closely after the announcement of new tariff measures. Concerns over escalating trade war tensions and their potential impact on the global economy intensified market anxieties.
Expert Analysis of Market Turmoil
“It’s a bloodbath on the share market today in Australia,” commented Luke McMillan, head of research at Ophir Asset Management in Sydney. He drew parallels between the current market activity and the steep declines observed during the Covid-19 pandemic and the global financial crisis.
McMillan highlighted a critical distinction, noting, “The key difference from those other periods is that this one is started by one person, essentially – being the US president. We just haven’t really had one person cause a bear market, let alone the president.”
Broad Market Sell-Off
On Monday, few sectors of the ASX were spared from the negative sentiment. Banking, mining, and energy stocks all experienced significant drops, indicating a widespread downturn across the Australian stock market.
Market Recovers Partially After Initial Shock
Shares in major companies such as Commonwealth Bank and BHP experienced declines exceeding 5% in early afternoon trading. However, the ASX managed to recover some of its initial losses, reducing the day’s total market losses to approximately $100 billion by midday. This partial rebound mirrored trends on Wall Street, where futures markets also demonstrated a recovery after substantial earlier falls.
Tariffs Fuel Recession Concerns
While the introduction of new tariffs initially triggered market instability last week, retaliatory tariff plans from major economies, including China and the EU, have heightened the danger of a global recession. Market participants perceive the Australian economy as closely intertwined with China due to their robust trade relationship.
Investors Await Trade War Truce
Investors are currently seeking indications of de-escalation in the global trade war before interpreting Monday’s intraday stock price recovery as a definitive positive signal.
“You need a catalyst for markets to recover,” McMillan stated. “They don’t just kind of stop of their own accord.”
Analyst Warns of Liquidity Crunch
Tony Sycamore, a market analyst at IG Australia, pointed out that China’s planned 34% retaliatory tariffs on all US imports have ignited fears of a “full-blown trade war, imminent recession and a liquidity crunch last seen during the early pandemic”.
Sycamore noted that while negotiation opportunities remain, a delay in reaching resolutions could increase the risk of the global economy entering a recession.
Currency Weakness
The Australian dollar depreciated to its lowest value against the US dollar since the Covid-19 pandemic, coinciding with widespread selling in global markets.
Commodity Price Sensitivity
The local currency’s value is closely correlated with commodity prices, particularly iron ore, which would be negatively affected by a slowdown in global economic activity, especially in China. The weakness in the Australian dollar reflects concerns about reduced demand for Australian commodities.
Australian Dollar Falls to Multi-Year Lows
Early Monday afternoon saw the Australian dollar trading at just over 60 US cents, having earlier fallen to a low of 59.64 US cents, its weakest point since April 2020. This represents a significant drop from 64 US cents mid-last week, prior to the tariff announcement that unsettled markets. The declining Australian dollar reflects broader economic anxieties.
Global Currency Depreciation
The Australian dollar also reached pandemic-era lows in European markets, falling to 54.4 Euro cents and 46.2 British pence at its lowest point on Monday morning. Similar depreciation was observed in Asian markets, with the Australian dollar weakening against currencies in Vietnam, India, Indonesia, and New Zealand.
Economist Links Currency Fall to Trade Tensions
“When there is concern about a global slowdown, and particularly from the tariff and global trade war, then there is less demand for our commodity,” explained AMP economist My Bui, referencing iron ore. This decreased demand for key Australian exports is directly impacting the value of the Australian dollar.