More falls for Australian shares as US stocks tumble
Australia’s economy grew 0.5 per cent in the lead up to Christmas, putting the economy in a better position to weather the fallout from the coronavirus. This comes as the prime minister is expected to announce a stimulus package.
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Australia’s economy grew 0.5 per cent in the lead up to Christmas, according to new figures.
The December quarter results performed better than expected, putting Australia in a better position to weather the economic fallout from the coronavirus.
This comes as Prime Minister Scott Morrison is expected to announce an economic stimulus package, as the virus wreaks havoc on Australian trade, supply chains and businesses across the country.
“What we need to do is ensure that with the fiscal response that we will provide and which I flagged last week, that we’d be delivering, that it is very targeted, that it’s very measured and it’s very scalable,” he told the ABC. “We’ll be announcing those soon and we’ll be announcing the key areas we will be targeting at that time.” Australia is considering travel bans for South Korea and Italy where coronavirus outbreaks have taken hold.
The Australian stock market dropped more than one per cent after US stocks tumbled overnight after a surprise rate cut.
The S & P/ASX200 index was down 75.7 points, or 1.18 per cent, at 6,360 (at 10.30am AEDT) reversing the gains from Tuesday when it finished up 44.2 points, or 0.69 per cent, at 6,435.7.
That result snapped a seven-day losing streak.
The broader All Ordinaries index dropped 76.7 points, or 1.18 per cent, to 6,434.9 as all indices fell except materials after half an hour of trading.
Materials were only marginally higher, boosted by gold stocks after the price of gold rose overnight and a small rise from Rio Tinto and Fortescue Metals.
Newcrest was up $1.10, or 4.06 per cent, at $28.21, and Northern Star was higher by 84 cents, or 6.37 per cent, at $14.03.
Info tech stocks were among the hardest hit, with the index down 2.29 per cent at 1300.6 points.
Appen lost 2.28 per cent to $22.28 while Altium fell 1.69 per cent to $31.47.
The big banks were all down between 1.47 per cent and 2.42 per cent.
US stocks fell overnight after the US Federal Reserve announced a surprise rate cut, saying the Covid-19 virus is an evolving risk to the economy.
Fidelity International’s head of global macro, Anna Stupnytska, said the 50 basis point emergency rate cut was faster than expected.
“Clearly, last week’s sharp market sell-off in light of coronavirus-related anxiety and the resulting tightening in financial conditions have forced the Fed to take a pre-emptive action to reassure the market – this is a strong signal from the policymakers,” she said in a research note.
The Australian dollar was buying 65.84 US cents (at 10.30am AEDT), up from 65.45 US cents at Tuesday’s market close.
At Wall Street, the Dow Jones Industrial Average ended at 25,917.41, down 2.9 per cent, a loss of nearly 800 points.
The broad-based S & P 500 sank 2.8 per cent to finish the day at 3,003.37, while the tech-rich Nasdaq Composite Index slid 3.0 per cent to 8,684.09.
The pullback came a day after a major stock rally and pushed the market back towards last week’s sentiment, when coronavirus worries led to major indices suffering their worst weekly losses since 2008.
While US economic fundamentals “remain strong,” the “coronavirus poses evolving risks to economic activity,” the Federal Open Market Committee said in a statement.
Stocks initially rallied on the Fed announcement, but soon pulled back.
“The Fed’s emergency rate cut was supposed to boost confidence but it may wind up raising fears that the coronavirus is likely to cause a major economic downturn,” economist Joel Naroff said.
Briefing.com analyst Patrick O’Hare said the Fed’s action “could ultimately erode market psychology because when you act that quickly, that aggressively in that short amount of time, it does raise a concern that things are going to get potentially much worse than what was presumed.”
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As for the Treasury market, yields on the 10-year have repeatedly hit all-time lows in recent days, but did not tumble below one per cent until the Fed’s emergency move, which came 15 days before its regularly scheduled meeting.
Treasury bonds are among the refuge-type assets that tend to attract buyers during periods of uncertainty.
JPMorgan Chase put the odds that US interest rates would hit zero in 2020 at 50 per cent, but said the “base case” called for 10-year rates to hit 1.3 per cent at mid-year and 1.6 per cent by year-end.
It comes as the World Bank announced that it is making $US12 billion ($A$18.4 billion) available to provide immediate support to low-income countries dealing with the health and economic impacts of the coronavirus.
World Bank President David Malpass said the money will go to help developing nations strengthen their health systems that are fighting an epidemic that has already spread to more than 60 countries.
“The point is to move fast,” Malpass told reporters.
“Speed is needed to save lives.”
The World Bank funds are designed to help countries detect when the virus crosses their borders and purchase medical equipment to treat any outbreaks.
Originally published as More falls for Australian shares as US stocks tumble