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A money-laundering scandal, fears of a new wave of lockdowns and delays in US economic relief sent global markets sharply lower overnight, signalling opening losses for Australian shares.
The S&P/ASX 200 looks set to open at its weakest level in 14 weeks after European markets plunged more than 3 per cent and the S&P 500 in the US neared correction territory. ASX SPI200 index futures fell 57 points or 1 per cent.
A “flight to safety” to the US dollar triggered sharp falls in oil, iron ore and metals.
Wall Street
The Dow Jones Industrial Average dived more than 3 per cent in the wake of heavy falls in Europe before a partial recovery pared its loss to 510 points or 1.84 per cent.
The S&P 500 dropped 38 points or 1.16 per cent to a fourth straight loss. The US benchmark came within a few points of entering a technical correction, defined as a decline of at least 10 per cent from a peak.
The Nasdaq dropped as much as 1.8 per cent before recovering to finish just 14 points or 0.13 per cent in the red. Wall Street’s “fear gauge”, the VIX, hit its highest level in almost two weeks.
What’s driving the market
European stocks tumbled after a surge of coronavirus cases in several countries raised fears of fresh lockdowns, and bank stocks were torpedoed by allegations of participation in moving suspicious funds. The pan-European Stoxx 600 index slumped 3.24 per cent, Germany’s DAX 4.37 per cent and benchmarks in the UK, France and Italy at least 3.38 per cent.
The declines came as parts of Madrid went back into lockdown and the mayor of London proposed fresh restrictions to curb a second Covid-19 wave sweeping the UK. UK Prime Minister Boris Johnson was reportedly considering a new national lockdown.
“There remains to be a tremendous amount of uncertainty,” John Kaprich, investment director at Aware Asset Management, told MarketWatch. “The numbers coming out of Europe don’t look as optimistic as they once did.”
Several banks were hit hard after being named in leaked documents alleging lenders allowed criminals to move money, in some cases in violation of sanctions. Deutsche Bank sank 8.5 per cent, HSBC 5.5 per cent, Barclays 5.6 per cent and Standard Chartered 5.8 per cent.
US stocks most dependent on economic recovery fell as a partisan political fight to replace Supreme Court judge Ruth Bader Ginsburg threatened to push negotiations over a second economic stimulus package onto the backburner. The S&P 1500 airlines index skidded 7.65 per cent and the S&P 1500 hotels, resorts and cruise lines index 6.23 per cent.
Australian outlook
The ASX 200 looks set to open at a level last seen in mid-June after a perfect storm of negative developments overseas. The index will start the day on a three-session losing run.
Technology was the only US sector to resist the chill winds, rising 0.8 per cent as traders rotated out of economically-sensitive sectors back into the battered market leaders. Miners were pummelled: the materials sector tanked 3.4 per cent.
The US financials sector shed 2.5 per cent after several US-listed banks were named in a cache of US Treasury documents leaded to the media alleging suspicious transactions. Several Australian banks were identified in the documents.
The dollar tumbled almost a cent as the market turmoil drove investors back to the perceived safety of the greenback. The Aussie fell 0.92 per cent to 72.25 US cents.
Commodities
The surging US dollar dented dollar-denominated commodities. The spot price for iron ore landed in China fell $5.20 or 4.2 per cent to US$120 a dry ton. Benchmark copper on the London Metal Exchange dropped 2 per cent to US$6,718.50 a tonne. Aluminium declined 0.8 per cent, nickel 2.4 per cent, lead 1.3 per cent and zinc 3.2 per cent. Tin closed flat.
Oil dived four per cent as the looming return of Libyan production added to broader down-pressures. Brent crude settled $1.71 lower at US$41.44 a barrel.
Gold dropped briefly below US$1,900 an ounce as the resurgent greenback crushed everything in its path. Gold for December delivery settled $51.50 or 2.6 per cent weaker at US$1,910.60 an ounce, its lowest close since July 24.
BHP‘s US-listed stock shed 3.27 per cent and its UK-listed stock 3.55 per cent. Rio Tinto lost 4.38 per cent in the US and 4.05 per cent in the UK.
