ASX on the cusp of a ‘correction’ as Trump’s tariffs rattle investors

It has been another dark day for Australian stocks as nervous investors wiped $36bn off the ASX in response to US President Donald Trump’s move to impose tariffs.

Nervous investors have wiped $36bn off the Australian stock market. Picture: AAP Image

Nervous investors have wiped $36bn in value off the Australian sharemarket in another dark day for the local bourse as US tariffs on steel and aluminium loom.

The ASX 200 benchmark closed 1.3 per cent lower at 7786.2 points on Wednesday. It dropped as much as 2 per cent to 7733.5 points in early trading – its lowest level since August 9 – as global markets shunned stocks amid rapid-fire developments in US trade policy and an overall aggressive stance that threatens global economic growth and corporate earnings.

The sell-off was broad and all sectors except utilities closed in the red.

CBA closed down 1.3 per cent at $144.80 after hitting a four-month low of $142.98 in a move that tested its 200-day moving average for the first time since late 2023. Other banks lost more than 2 per cent.

The ASX 200 Banks index hit its lowsest level since October after falling 12 per cent in the past four weeks. Macquarie Group fell 1.4 per cent to $199.09.

In the materials sector, BHP and Rio Tinto both fell 1.8 per cent to $38.95 and $117.23 respectively, and James Hardie fell 2.6 per cent to $49.53, but Fortescue rose 1.5 per cent.

BlueScope Steel, which may benefit from US steel tariffs due to its North Star operation in Delta, Ohio, slipped 0.9 per cent to $22.84 after hitting a 15-year high of $26.05 last month.

Gold miners rose with Newmont up 1.5 per cent to $68.82 after gold rebounded strongly.

In the property sector, Goodman Group closed up 0.5 per cent at $30.71 after bouncing strongly following its 2.4 per cent intraday fall to a 12-month low of $29.83.

“Markets have been rattled by economic slowdown fears fuelled by tariffs and spending cuts by the US government,” said James Nicolaou, an institutional sales trader at PAC Partners.

“Wall Street is starting to fear that Trump will wreck the soft landing for the US economy.

“Speculative corners of the market have been routed as investors flee to high-quality assets.”

US President Donald Trump’s tariffs have rattled investors. Picture: Getty Images

At its low point the Australian index was on the verge of entering a “technical correction” defined as a fall of at least 10 per cent from the daily closing high of the current bull market.

The index had fallen as much as 9.6 per cent from the record closing high of 8555.81, matching a similar decline in America’s S&P 500 which fell as much as 1.5 per cent on Tuesday before ending down 0.8 per cent at 5572.07 points. The ASX will officially enter a correction if it breaks below the 7700 mark.

“The ASX 200 almost entered so-called correction territory as US President Donald Trump’s trade war sucks the air out of equity valuations,” said Kyle Rodda, senior market analyst at capital.com.

Mr Rodda said the Trump administration’s trade policy was “confusing, incoherent and seemingly improvised”.

Investors have come to a “shocking realisation that unlike in his first term, Trump isn’t pivoting due to the downturn in the stockmarket and the economic outlook”, he said.

Moomoo.com market strategist Jessica Amir warned of broad downward pressure on the Aussie sharemarket as “traders adjust for less company profits”.

“If we compare what we’re going through now to the events of 2018, we can expect markets to fall another 10 per cent and enter a bear market with a 20 per cent loss, by the time this is over,” she said.

“Add to this that there’s talk investment banks are seriously downgrading global growth, and we’ve not really yet seen earnings lowered. That will cause market shocks.”

Bell Potter head of institutional sales and trading Richard Coppleson said the ASX 200 received an additional hit from from “margin selling” on behalf of investors who bought stocks on leverage and couldn’t meet their margin payments.

“Margin calls go out early in the morning and if cash isn’t topped up by around 11am, margin call selling can hit the market from 11am to about 12pm,” he said.

“So markett weakness can often be seen in the morning and it goes through to just after 12pm. We saw the low hit at 12.15pm and then a bounce.”

For the short term, Mr Coppleson said that markets had moved from “buy the dip to sell the rip – so every time it has bounced the bounce has been sold into”.

“The primary direction is now down and while we see ‘lower lows’ the rallies are always going to be limited right now as sellers will sell the bounce until the market eventually sees ‘higher highs’ but no one knows when that will be,” he said.

It came after another volatile night in global markets.

The VIX volatility index spiked to a 29.6 per cent which was a new high for the year, before settling at a still-elevated 26.9 per cent.

The S&P 500 hit a six-month low of 5528.41 after Mr Trump threatened to double a looming tariff on Canadian steel to 50 per cent in retaliation for a threat by Ontario’s Premier, Doug Ford, to implement a 25 per cent charge on electricity exports to the US.

The White House later withdrew the latest tariff threat against Canada after Mr Ford withdrew his threat.

A subsequent rebound in US stocks came after Ukraine agreed to accept a US proposal for a 30-day truce in its war with Russia, if concurrently implemented by Russia.

Mr Trump played down fears over his handling of the economy, saying he did not “see” a recession coming, while also dismissing a steady run of losses on Wall Street.

The sell-off “does not concern me,” Mr Trump told reporters at the White House.

However, the White House confirmed that 25 per cent tariffs on US steel and aluminium imports would go ahead on Wednesday, with no exemptions.

US President Donald Trump speaks at the business roundtable quarterly meeting in Washington. Picture: AFP

ANZ said the steel and aluminium tariffs were a “downside risk” to the domestic economy.

The nation’s large goods trade deficit meant that the tariffs would have little direct impact. But while aluminium and steel exports to the US were just 0.2 per cent of Australia’s total goods exports in 2024, the economy is indirectly exposed to US tariffs through their impacts on key trading partners.

“Slower growth in China, for instance, would place downside risk to Australia’s exports,” ANZ economists Sophia Angala and Adelaide Timbrell said in a report.

“Australia is also indirectly exposed to impacts on major trading partners, through uncertainty affecting consumer and business decisions and the effect that will have on confidence.”

In the worst case, a trade war could lead to supply chain disruptions that increase the price of goods imports, negatively impacting domestic incomes and offsetting disinflation momentum.

But a more likely, milder outcome would be slightly lower global demand due to direct impacts of tariffs, combined with the impacts of uncertainty among business and consumers globally.

Impacts to growth in Australia under this milder scenario would include: lower commodities income, less Australian exports more broadly, Australian dollar depreciation which could add to inflation and weaker business conditions, the ANZ economists said.

Originally published as ASX on the cusp of a ‘correction’ as Trump’s tariffs rattle investors