ASX loses almost $50 billion after Wall Street plunge; $A slumps to two-year low

Investors have wiped almost $50 billion off the ASX, and the Australian dollar has plunged to a two-year low, as global markets were rattled by the US Federal Reserve’s prediction it would deliver fewer rate cuts in 2025 than expected.

The S&P/ASX200 lost 141.2 points, or 1.7 per cent, to 8168.2 points. All 11 industry sectors retreated on the worst trading day on the ASX since the start of September. The Australian dollar slid to a two-year low, and was valued at US62.21¢ as at 5.16pm AEDT.

Wall Street took a plunge after the Fed’s rates forecast. Credit: Bloomberg

AMP chief economist Shane Oliver said the Fed’s rate projections were the “be all and end all that’s driven our market”, but found the sell-off “a bit of an overreaction”.

“The Fed isn’t cutting as much because their economy is stronger,” Oliver said. “The market was expecting a less hawkish Fed, and that’s made the market worry a bit, and that’s flowed through to our markets.”

Nick Griffin, chief investment officer at Munro Partners, found the market plunge “perplexing” , saying he didn’t think the Fed “told us anything we didn’t already know”.

FP Markets head Nick Twidale contended that the Fed’s decision suggested “more downside” for Australian markets, including the Aussie dollar. Future trading was likely to be influenced by the introduction of economic policies from President-elect Donald Trump, who will be inaugurated on January 20.

“We will kick off the new year, and for the US it will be about the Trump administration, and everything they’re talking about with their policies is inflationary,” Twidale said. “The Fed can’t cut rates too soon because they might be hit with inflation.”

Australia’s mining heavyweights were among the session’s biggest losers as the sector plunged 2 per cent. Iron ore giant Fortescue lost 3.9 per cent, BHP fell 1.5 per cent and Rio Tinto shed 0.9 per cent.

Gold miners Newmont and Northern Star Resources fell 3.6 per cent and 4.1 per cent respectively, as the gold price tumbled as much as 1.6 per cent to the lowest price in a month. Lower rates typically benefit bullion as it pays no interest.

ANZ – which faced an investor revolt at its annual general meeting in the morning as nearly 40 per cent of investors voted against its executive pay scheme – took the greatest hit of all the big four banks, losing 2.6 per cent. It was followed by Commonwealth Bank (down 2.3 per cent), NAB (down 2.1 per cent), Westpac (down 2.4 per cent) and Macquarie (down 1.3 per cent).

Jun Bei Liu, a portfolio manager at Tribeca Investment Partners, said the sell-off on Wall Street and the implications to the Australian market were “nothing to be alarmed about”.

“The Fed provided constraint to the US dollar, and that’s why we’re seeing the Aussie market fall,” Liu said. “It’s just the US dollar going up, and everything else going down.”

No industry performed worse than IT stocks (down 2.5 per cent) after the sell-off on Wall Street. Embattled firm WiseTech Global fell 2.2 per cent, while Xero (down 2.6 per cent) and TechnologyOne (down 1.8 per cent) were also in the red. NextDC lost 3.1 per cent.

Energy giants Woodside (down 1.9 per cent), Santos (down 1.1 per cent) and Ampol (down 0.2 per cent) all slid. Losses in the sector were compounded by Whitehaven Coal (down 4 per cent) and Yancoal Australia (down 0.9 per cent).

Energy company Deep Yellow fell 12.1 per cent after telling shareholders it wouldn’t make a final investment decision on its Tumas uranium mine in Namibia until early March amid delayed costings and quotes for equipment and construction.

On Wall Street, US stocks sank to their second-worst loss of the year after the Federal Reserve signalled that it might deliver fewer interest rates cuts in 2025 than earlier thought.

The S&P 500 dropped 2.9 per cent to pull further from its all-time high set a couple of weeks ago. The Dow Jones sank 2.6 per cent, or more than 1100 points, and the Nasdaq composite dropped 3.6 per cent.

The Fed cut its main interest rate for the third time this year, but that was widely expected.

More attention was on the projections Fed officials released about where they saw rates heading next year. The median forecast is calling for two cuts, down from four just three months ago. Treasury yields rose.

A lot is riding on the extent of rate cuts after expectations for a series of cuts in 2025 helped the US stock market set an all-time high at least 57 times in 2024.

The US central bank has eased its main interest rate since September by a percentage point to a range of 4.25 per cent to 4.5 per cent. But now, “we are in a new phase of the process”, said Fed chair Jerome Powell.

AP

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