Australian stocks tipped to sink as global recession fears grow

The local energy sector is set to face the brunt of the selling pressure on Monday as global recession fears mount.

The Australian sharemarket is tipped to sink at Monday’s open, with the energy sector to face the brunt of the selling pressure as global recession fears mount.

SPI futures are pointing to a 1.3 per cent slide at the open in what market watchers are tipping will be a broadbased sell-off.

The expected decline comes after US sharemarkets retreated sharply on Friday, with the Dow marking its lowest close since 2020, at 29590.41, after falling 1.6 per cent. The S&P 500 dropped 64.76 points, or 1.7 per cent, to 3693.23, as the Nasdaq Composite slid 198.88 points, or 1.8 per cent, to 10867.93.

In Europe, the FTSE 100 shed 2 per cent as the UK government released a mini budget with generous tax cuts designed to boost consumption and growth, sparking market fears of even greater inflationary pressures.

Locally, investors are still smarting from Friday’s session, which wiped $43bn off the ASX, pushing the S&P/ASX 200 down 2.5 per cent for the week.

The Australian sharemarket is tipped to open in the red on Monday, following US and European markets lower. Picture: AAP Image/Joel Carrett

Most sectors are likely to see red on Monday, but defensives could provide a measure of relief, according to CommSec senior economist Ryan Felsman.

“We’re going to have a brutal start to the market tomorrow in a continuation of what we saw on Friday, with energy shares under a lot of pressure,” Mr Felsman told The Australian.

“Energy has been the strongest performer year to date for the ASX 200, that sector has been propping up the market, even with the 10 per cent broader market drop year to date.

“But on Monady we’ll see a big energy sell-off as well as a decline in interest rate-sensitive sectors like real estate and IT.”

The energy hit will come after oil prices tumbled 5 per cent on Friday, with Brent crude down 4.8 per cent to $US86.15 a barrel and West Texas Intermediate falling 5.7 per cent to $US78.74 a barrel.

One or two sectors could escape the worst of Monday’s sell-off, Mr Felsman said.

“Investors will be seeking shelter and what they‘ll be doing is looking at some of those defensive asset classes like healthcare and consumer staples as we saw towards the end of last week in the US. Healthcare was among the strongest performers in that market on the back of defensive demand.”

With equities around the globe now back near their June lows, markets are technically looking oversold, AMP chief economist Shane Oliver said.

“The market’s now at levels you often get a bounce from and you may see some dip buying kick in like we did on Friday when the US market fell below the June lows; there was a bit of bargain hunting at the end there … so it’ll be interesting to see if the June low holds,” he said.

AMP chief economist Shane Oliver. Picture: Supplied

The risk is that any bounce may not be sustained and that markets may drop further amid expectations of earnings downgrades to come, he warned.

“We’ve already started to see some of (the earnings downgrades) happen, though it’s very minor at this stage. Through the earnings reporting season, the current financial year earnings expectation went from about 7 or 8 per cent down to 5 or 6 per cent,” Dr Oliver said.

“So the momentum has started to move down and I suspect we’ll start to see more of that which could give us another leg down in markets. If that happens the US could fall another 10 per cent and that will filter through to our market.”

On the data front, the main focus of the week ahead will be on new monthly ABS CPI inflation data for July and August, due on Thursday, Mr Oliver said.

Elsewhere, retail sales numbers are due out on Wednesday, followed by August job vacancy data on Thursday and private credit data on Friday.