Australian shares drop in early trading after world stock market sinks

Australian shares have dropped in early trading, after a shocking day on world stock markets, as fears over China’s Covid lockdowns added to the rout.

Australian shared dropped to their lowest level in three months as trading kicked off today.

The ASX200 fell 2.5 per cent to 6943.4, with falls impacting tech and energy stocks in particular although all categories started in the red.

Falls were expected after world stock markets mostly sunk overnight amid concerns about China’s Covid lockdowns and how this would impact global growth, as well as rising US interest rates and surging inflation.

It comes as heavy declines across the mining and technology sectors knocked the benchmark ASX 200 down another 85 points on Monday, or 1.2 per cent, to a new eight-week low of 7120.6 in a further sign the global equity correction has caught up to local traders.

The broader All Ordinaries lost 1.5 per cent to 7357.9 and the Aussie dollar dropped to a more-than-three-month low of 70 US cents as the Greenback continued to strengthen.

The market has now declined in five of the past six sessions, and in eight of the past 11, having flirted with record highs as recently as April 20.

“The month of May has a reputation as a tough one for the local bourse, and after just six trading days, the ASX200 is down over 4 per cent for the month,” City Index analyst Tony Sycamore said.

It follows a miserable end to the week on Friday as a savage Wall Street sell-off washed through and knocked all but a handful of companies into the red.

Overnight the bad news continued with oil prices slumping on Monday (US time) as China’s Covid lockdowns added to stubborn fears over the impact of rising US interest rates and surging inflation.

Wall Street suffered another rout, with the tech-rich Nasdaq slumping more than four per cent and the S&P 500 ending below 4,000 points for the first time since March 2021.

Frankfurt, London and Paris all fell more than two per cent, as did Tokyo.

Meanwhile, oil prices slid more than five per cent, while bitcoin plunged below $31,000 hitting its lowest level since late 2020, as investors shunned the volatile cryptocurrency.

“The bloodletting on stock markets has continued today as we start a new week … with the biggest declines being seen in basic resources after the latest China trade data,” said market analyst Michael Hewson at CMC Markets UK.

Traders work on the floor of the New York Stock Exchange (NYSE) last week. Picture: Spencer Platt/Getty Images/AFP

Fears over China’s Covid lockdown

Millions of people in Beijing stayed home on Monday as China tries to fend off a Covid-19 outbreak with creeping restrictions on movement.

Residents of the capital fear they may soon find themselves in the grip of the same draconian measures that have trapped most of Shanghai’s 25 million people at home for weeks.

Lockdowns across dozens of Chinese cities — from the manufacturing hubs of Shenzhen and Shanghai to the breadbasket of Jilin — have wreaked havoc on supply chains over recent months and further stoked global inflationary pressures.

Investors were given more bad news after China reported that exports in April slumped to their lowest level in almost two years, due to the nation’s strict zero-Covid policy.

Anxiety spreads

US stock markets dived late last week after the Federal Reserve raised up interest rates by a half-percentage point and flagged more aggressive hikes ahead to tackle decades-high inflation, and continued sinking on Monday.

“Anxiety is stemming from the Fed’s next moves, with uncertainty creeping in about the scale and speed of interest rate hikes,” said Hargreaves Lansdown analyst Sophie Lund-Yates.

Global markets also have taken a beating this year following Russia’s invasion of Ukraine.

President Vladimir Putin on Monday defended the offensive in Ukraine and blamed Kyiv and the West, as he looked to use the grand Victory Day celebrations to mobilise patriotic support for the campaign.

However, investors were relieved that Putin made no major announcements, despite reports he could use the anniversary to announce an escalation of the conflict.

“Putin has not declared a war on Ukraine to enable full mobilisation which is obviously a relief,” noted Markets.com analyst Neil Wilson.