ASX 200 king hit after Wall St sell-off as trade war heats up

On another dark day for the Aussie stock market, $48 billion has been wiped off the value of our biggest companies, taking losses to a painful $90 billion in two days. Here’s what triggered the sell-off.

The US and China are at loggerheads over currency values.

A DRAMATIC two-day sell-off triggered by a tit-for-tat escalation in the US-China trade war has wiped $85 billion from the Australian share market.

A day after sliding 1.9 per cent, Australia’s benchmark share index spiralled another 2.4 per cent today in its deepest single-session fall since last October.

The tumble came as the Reserve Bank kept the cash rate on hold but warned it was ready to cut further amid weaker-than-expected domestic economic growth and “increased uncertainty” on the global front.

Investors also digested a flurry of economic developments, including a record trade surplus on the back of high iron ore prices and a fall in the yield on 10-year Australian government bonds, to less than 1 per cent for the first time.

US President Donald Trump has ramped up the pressure on China. Picture: Saul Loeb/AFP

The hit to the Australian bourse comes just a week after it clawed its way to an all-time high, finally throwing off its hangover from the global financial crisis.

“What has been driving markets over the past year is the ultra-low interest rate policies of central banks and concern about the trade war between the US and China — it is almost a push and pull,” Burman Invest portfolio manager Julia Lee told Business Daily.

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“The extra tariffs that the US is going to impose on China and China’s retaliation with the devaluation of its currency has escalated the concerns around global growth.”

The 2.4 per cent fall in the ASX 200 left the index at 6478.09 points. It came after Wall St suffered its biggest one-day fall so far this year overnight Tuesday amid fears China is devaluing its currency to offset the impact of a new US tariffs.

The US has officially labelled China a currency manipulator.

The US ramped up the pressure last night, officially labelling China a currency manipulator and saying it would seek corrective action from the International Monetary Fund.

A weaker Chinese currency relative to the US dollar makes its exports to America cheaper, offsetting the impact of tariffs.

In a positive sign for investors, China took steps to support the value of the yuan late this afternoon.

“Although we remain of the view that a deal will be reached, the risk has increased,” AMP Capital chief economist Shane Oliver said. “Share markets may need to fall further in the short term to remind both sides of the need for a deal and get them talking again.”

Today’s selldown follows a slide on Monday that wiped $37 billion from the value of companies in the ASX 200.

The value of the Chinese yuan relative to the greenback fell heavily earlier this week.

Couple with a $48 billion hit today, it means that all up, about $85 billion has been erased in shareholder value over the past two days.

The index has also fallen every day since hitting a record high on Tuesday last week, but remains 15 per cent above where it started the year.

RBA governor Philip Lowe referenced the international tensions as the board of the central bank kept the cash rate at a historic low of 1 per cent and downgraded its economic growth and inflation forecasts.

“The increased uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy remain tilted to the downside,” Dr Lowe said.

The decision to keep rates on hold following back-to-back monthly cuts had been expected but economists say the RBA is all but certain to deliver one more cut before the end of the year.

The RBA expects the economy to grow about 2.5 per cent this year, down from an earlier forecast of 2.75 per cent.

“It is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieve more assured progress towards the inflation target,” Dr Lowe said.