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Two days of Australian share gains looked set to evaporate at today’s market open after Wall Street’s tech rout deepened into a correction.
ASX SPI200 index futures tumbled 98 points or 1.6 per cent. A fall of that scale would wipe out the S&P/ASX 200’s 82-point rise over the last two sessions, sending the index back towards Monday’s five-week low.
The Nasdaq Composite dived 465 points or 4.11 per cent as the market-leading technology sector sold off for a third night. The tech-heavy index has swung from a record high into a technical correction – defined as a retrace of at least 10 per cent – in three brutal sessions amid panic about bloated valuations.
Oil fell to its lowest level since June. Gold edged higher. Iron ore and industrial metals declined.
Wall Street
While technology stocks led the retreat, no sector was spared as the S&P 500 slumped 95 points or 2.78 per cent. The tech sector dropped 4.6 per cent. Apple gave up 6.7 per cent, Microsoft 5.4 per cent, Amazon 4.4 per cent and Facebook 4.1 per cent.
The Dow Jones Industrial Average shed 632 points or 2.25 per cent, with 26 out of its 30 component companies closing in the red. Only Disney, McDonald’s, Nike and Caterpillar managed gains.
The Nasdaq had risen more than 70 per cent from its March low, ringing alarm bells about valuations.
“High valuations in the mega-cap stocks are stretched far beyond historical levels,” Bruce Bittles, chief investment strategist at Baird, told CNBC. “The technical indicators– high margin debt, fully invested mutual funds, CBOE options data showing record call volume, Wall Street letter writers at bullish levels – pointed to excessive optimism in the market which often suggests a consolidation/correction phase is likely.”
Tesla dived 21.1 per cent after unexpectedly missing out on inclusion in the S&P 500. Computer chipmakers were belted after the White House threatened to add China’s biggest chipmaker to a list of banned entities, raising fears about possible Chinese retaliation. An exchange traded fund of chipmakers fell 4.4 per cent.
Aussie outlook
Supported by positive US index futures, Australian stocks had rebounded strongly from last week’s losses amid hopes the US Labor Day long weekend would act as a circuit-breaker from last week’s heavy selling. That now looks like a misstep. US index futures turned negative soon after the ASX closed yesterday and continued south into the market open.
Market risks appear to be increasing ahead of the November US Presidential election. A stalled coronavirus relief package is a headwind for the US economy, the election is too close to call and the White House is using divisions with China as an election ploy. President Donald Trump spoke this week about “decoupling” the US economy from China to “end our reliance on China”.
Havens were hard to find in the US action. The S&P 1500 airlines index rose 1.48 per cent, but other ‘recovery plays’ were mixed. Cruiselines and retailers avoided the worst of the selling but any gains were slender. Utilities was the best of the US sectors with a fall of 0.6 per cent. Gold stocks declined: the NYSE Arca Gold Bugs Index slid 0.9 per cent.
Once again the silver lining for exporters was another downleg in the dollar as investors rushed into the perceived security of the greenback. The Aussie slid 0.9 per cent to 72.15 US cents.
Commodities
Oil was crunched after Saudi Arabia cut its crude price for Asian customers, a sign of weak demand, according to industry analysts. Brent crude settled $2.23 or 5.3 per cent lower at US$39.78 a barrel, its first close below US$40 since June. The US benchmark tumbled 7.6 per cent.
Iron ore eased amid tensions between China and the US. The spot price for ore landed in China declined 90 cents or 0.7 per cent to US$129 a dry ton. BHP’s US-listed stock slid 1.23 per cent and its UK-listed stock 0.49 per cent. Rio Tinto dropped 1.02 per cent in the US after rising 0.42 per cent in the UK.
Gold inched to its highest close in almost a week. Gold for December delivery settled $8.90 or 0.5 per cent ahead at US$1,943.20 an ounce. Silver gained 1 per cent.
Industrial metals were dragged down by the turmoil in stocks. Benchmark copper on the London Metal Exchange fell 1.7 per cent to US$6,695.25 a tonne. Aluminium gave up 0.3 per cent, nickel 1.9 per cent, lead per cent, zinc 3.7 per cent and tin 1.6 per cent.
