Australian shares drop as recession fears grow

Fears about the health of the global economy are causing major declines in world markets, with the Australian sharemarket in negative territory.

Australian shares have seesawed on Wednesday morning as fears about the health of the world economy continue to circulate globally.

In the first 15 minutes of opening, the S&P/ASX 200 index was down 0.5 per cent. It bounced up by 0.3 per cent to 6650.00 at 10.50am AEST, before heading back into negative territory, according to The Australian, which has been tracking significant changes.

The benchmark index was down by 0.3 per cent to 6610.20 at 12.11pm AEST.

The tech sector has performed the best, while energy and materials have taken a hit as expected.

Oil prices have plummeted with the main international crude oil contract, Brent North Sea, falling nearly 10 per cent, while the main US contract, West Texas Intermediate, fell more than 8 per cent to finish under $100 per barrel for the first time in about two months.

At about 12.30pm, the Australian Financial Review listed the S&P/ASX 200’s best on Wednesday as Zip Co, Megaport, Tyro, EML Payments and Mesoblast.

The worst were Beach Energy, St Barbara, Regis Resources, South32 and Graincorp.

The Australian sharemarket ended higher on Tuesday for the second day after the Reserve Bank of Australia hiked the official cash rate another 0.5 per cent – its third consecutive monthly increase.

On Wall Street, the Dow Jones Industrial Average closed at -0.4 per cent, S&P 500 at +0.2 per cent and Nasdaq Composite Index at +1.8 per cent.

The yield on the US 10-year note fell to 2.81 per cent.

The Australian dollar had fallen near US67.95c at the US close, but it wasn’t as bad as the euro, which sank to a 20-year low.

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The Australian Stock Exchange in Sydney. Picture NCA Newswire/Gaye Gerard.

Euro tumbles amid recession fears

European stocks sank Tuesday local time along with oil prices, while the euro slumped towards parity with the dollar on deepening recession fears as central banks contend with soaring inflation.

European stock markets fell nearly 3 per cent, weighing on Wall Street early in the day before US stocks staged a turnaround.

“Fears about the health of the world economy are circulating and that is why we are seeing major declines in stocks, energies, and industrial metals,” said market analyst David Madden at Equiti Capital.

The euro has sunk to a two-decade low. Picture: AFP

The euro sank to a 20-year dollar low of $1.0238 as investors eyed aggressive interest rate hikes by the US Federal Reserve in its fight against inflation, in contrast with the European Central Bank, seen as planning more modest increases.

“There are increasing worries the elevated energy prices will chip away at demand, hence the fall in the oil contracts,” said Mr Madden.

Sentiment in Europe was shaken by the latest survey data showing economic growth in the eurozone floundered in June.

S&P Global’s closely-watched monthly purchasing managers’ index (PMI), which measures corporate confidence, fell to 52.0 in June from 54.8 in May.

Nevertheless, the reading, which was a 16-month low, remains above the 50-point level signalling expansion.

“Growing fears of a recession are hammering the euro lower, whilst the dollar is soaring on bets that the Fed will keep hiking rates aggressively to tame inflation,” City Index analyst Fiona Cincotta told AFP.

“Today’s PMI data from Europe have highlighted the risk of slowing growth at the end of the second quarter and raise the prospect of a contraction in activity in the coming months.”

XTB chief market analyst Walid Koudmani said: “The ECB (European Central Bank) is caught between a rock and a hard place as it needs to raise interest rates to tackle inflation and boost its currency while simultaneously supporting struggling economies which are just recovering after two years of pandemic related issues.”

The New York Stock Exchange in New York City. Picture: Spencer Platt/Getty Images/AFP

While US stocks spent the morning deep in the red, equities rallied in the afternoon, enabling two of the three major indices to finish higher.

The shift came as the yield on the 10-year US Treasury note, a proxy for interest rates, fell further below 3 per cent.

“The concern of a recession is deepening,” said LPL Financial’s Quincy Krosby, who noted the correlation between tech shares and drops in Treasury bond yields.

“You look for growth, where you can find it,” Dr Krosby said. “Many of those large tech names that have been beaten up by the market become attractive again, particularly when the bond yields are lower.”

Key figures at around 2030 GMT

Euro/dollar: DOWN at $1.0266 from $1.0422 Monday

Pound/dollar: DOWN at $1.1956 from $1.2118

Euro/pound: DOWN at 85.85 pence from 86.00 pence

Dollar/yen: UP at 135.87 yen from 135.62 yen

Brent North Sea crude: DOWN 9.6 per cent at $102.57 per barrel

West Texas Intermediate: DOWN 8.8 per cent at $98.94 per barrel

New York – Dow: DOWN 0.4 per cent 30.967,82 (close)

New York – S&P 500: UP 0.2 per cent at 3,831.39 (close)

New York – Nasdaq: UP 1.8 per cent at 11,322.24 (close)

London – FTSE 100: DOWN 2.9 per cent at 7,025.47 (close)

Frankfurt – DAX: DOWN 2.9 per cent at 12,401.20 (close)

Paris – CAC 40: DOWN 2.7 per cent at 5,794.96 (close)

EURO STOXX 50: DOWN 2.7 per cent at 3,359.83 (close)

Tokyo – Nikkei 225: UP 1.0 per cent at 26,423.47 (close)

Hong Kong – Hang Seng index: UP 0.1 per cent at 21,853.07 (close)

Shanghai – Composite: FLAT at 3,404.03 (close)