ASX plunges early investors warn Scott Morrison’s stimulus package won’t stop bleeding

A day after $140 billion was wiped from Aussie shares, investors say another historic plunge was all but certain but the market is rebounding.

Wall Street recorded its worst point drop in history overnight. Picture: Timothy A Clary / AFP

Australian stocks tumbled yet again at the open as fears of an oil price war between Saudi Arabia and Russia have compounded an international economy already crippled by the coronavirus outbreak.

But the losses were pared right back by lunch and had edged 0.8 per cent higher by 12.30 AEDT as analysts warn the volatility is a “perfect storm”.

Up to 3.8 per cent was wiped off in early trade but the market whipped back after US President Donald Trump announced details of a stimulus package to help businesses impacted by the spread of the deadly virus.

The plan includes payroll tax relief and loans for small business.

The ASX recorded its worst day since the Global Financial Crisis on Monday as it fell 7.3 per cent lower and shed $140 billion and the death spiral was expected to continue throughout the day.

[CHART] ASX 200: selling urgency eases on Tuesday - market bounces having been down 3.8% at opening lows; US futures rally in after hours trade reacting to news US President Trump will seek payroll tax cut & “very substantial relief” industries hit by the virus #ausbiz pic.twitter.com/yTxhqLrYsV

— CommSec (@CommSec) March 9, 2020

Overnight, the Dow Jones was forced to trigger an emergency halt of trading when it plunged 7 per cent — a mechanism designed to prevent panic selling not needed since 1997.

More than $440 billion has now been lost from the Australian market since it hit a record high of 7289.7 points on February 20.

IG market analyst Kyle Rodda said all indications point to another day of pain inflicted on Aussie stocks.

“The market is showing definite signs of capitulation and if you look across global markets there’s just a sense of pure panic,” he told news.com.au.

Opening bell on Wall Street..... pic.twitter.com/R7rXlkmQTN

— Nick Bryant (@NickBryantNY) March 9, 2020

“There’s no real greater certainty about the future and markets are being controlled by fear, we’re seeing investors shoot from the hip first and ask questions later because it’s too costly to take the risk of holding riskier assets.”

MARKET WATCH

• The big banks were all slightly lower at noon, with CBA down 18 cents at $68.97 per cent, NAB 20.5 cents down at $19.935, ANZ dropping 15 cents to $20.12 and Westpac losing one cent to $19.51.

• Giant miners were mixed, BHP Group was 13 cents higher at 27.68, while Rio Tinto was down 21 cents at $18.56.

• The Aussie dollar was buying 65.82 US cents at noon AEDT on Tuesday, up from 65.46 US cents at the market close on Monday.

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Before the trading bell was rung on Monday morning, crude oil prices spiralled up to 30 per cent lower after Saudi Arabia slashed its export oil prices and stoked fears of a destructive price war with Russia.

And since then, the trading channels have been further hampered as Italy announced a lockdown of the entire country to control the spread of the deadly outbreak.

“At the moment, everything that could go wrong is going wrong,” Mr Rodda said.

“We’re seeing massive macroeconomic headwinds emerging from the coronavirus and the fundamental landscape shifted yesterday with what happened in oil markets.

“Growth was already looking like it is was going to take a pretty considerably hit globally because of the coronavirus outbreak and now we’re seeing financial conditions deteriorate significantly because of what is looking like a prolonged price war.

“It’s almost a perfect storm.”

Investors will be keeping a close eye on details of stimulus package revealed this morning by Prime Minister Scott Morrison but Mr Rodda said it won’t stop the bottom of the market from falling out.

According to The Australian, pensioners, Newstart recipients and small business owners are expected to be considered for the one-off cash payments as the government tries to protect jobs and inject more money into the economy.

“It’s certainly not going to turn the tide in equities because we’re trading more on global scenes,” Mr Rodda told news.com.au.

“There’s probably the argument to be made if you talk to someone in the market right now, rightly or wrongly, the government’s been a little bit too slow to respond with promises of fiscal stimulus.”

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AMP chief economist Shane Oliver agreed, saying any respite offered from the government would be reserved for when the panic eventually dissipates.

He told news.com it was clear global markets were currently “driven by fear” and “bad news is still dominating”.

“The stimulus plan will help, as did last week’s interest rate cut, they’ll help soften the blow but until we can get more confidence that the worst of the economic impact is in sight, then markets remain at risk,” Dr Oliver said.

“It’s probably not going to occur until the dust settles.”

The leading economic commentator stressed the importance for everyday investors to remember market fluctuations are normal.

“History tells us that these things come along every so often, you get this horrible time in the share markets and financial markets generally and after a couple of months volatility settles down and things start to recover again,” Dr Oliver said.

“It’s just the way markets work, I guess the volatility is the price that investors pay for the high returns they get out of shares over the long run.

“But that doesn’t mean that it’s any less unnerving.”

OIL PRICES PLUNGE

A dispute between oil producers resulted in oil prices plunging and could lead to a global economy already spooked by the deadly coronavirus being awash in an oversupply of crude.

The Bloomberg commodity index is its lowest since July 1986, and close to its low since inception. pic.twitter.com/xwECK9Caag

— John Authers (@johnauthers) March 9, 2020

Brent Crude, the international standard, was more than 20 per cent lower on Monday morning to $US35.77 a barrel, recovering slightly from a low not seen since 2016. Benchmark US crude fell to $US32.64.

Prices are falling as Saudi Arabia, Russia and other oil-producing countries argue how much to cut production in order to prop up prices.

Demand for energy is falling as people cut back on travel around the world. The worry is that the new coronavirus will slow economies sharply, meaning even less demand.

— with AAP