Trade war slashes $A85b from market
A DRAMATIC two-day selloff triggered by a tit-for-tat escalation in the Us-china trade war has wiped $85 billion from the Australian share market.
A day after sliding 1.9 per cent, Australia’s benchmark share index spiralled another 2.4 per cent yesterday in its biggest single-session fall since last October.
The plunge came as the Reserve Bank kept the cash rate on hold but warned it was ready to cut further amid weaker-than-expected domestic economic growth and “increased uncertainty” global front.
Investors also worked through a flurry of economic updates, including a record trade surplus on the back of high iron ore prices and a fall in the 10-year bond rate below 1 per cent for the first time.
The hit to the Australian bourse comes just a week after it clawed its way to an all-time high, finally throwing off its hangover from the global financial crisis.
“What has been driving markets over the past year is the ultra-low interest rate policies of central banks and conon the cern about the trade war between the US and China — it is almost a push and pull,” Burman Invest portfolio manager Julia Lee said.
“The extra tariffs that the US is going to impose on China and China’s retaliation with the devaluation of its currency has escalated the concerns around global growth.”
The 2.4 per cent fall in the ASX 200 left the index at 6478.09 points — a level it was last at in early June.
It came after Wall Street suffered its biggest one-day fall so far this year overnight Tuesday amid fears China is devaluing its currency to offset the impact of a new round of US tariffs.
The US ramped up the pressure yesterday, officially labelling China a currency manipulator and saying it would seek corrective action from the International Monetary Fund.
A weaker Chinese currency relative to the US dollar makes its exports to America cheaper, offsetting the impact of tariffs.
In a positive sign for investors, China took steps to support the value of the yuan late yesterday afternoon.
“Although we remain of the view that a deal will be reached, the risk has increased,” AMP Capital chief economist Shane Oliver said.
“Share markets may need to fall further in the short term to remind both sides of the need for a deal and get them talking again.”
Yesterday’s selldown follows a slide on Monday that wiped $37 billion from the value of companies in the ASX 200. The index broadly tracks the nation’s 200 biggest listed companies.
All up, about $85 billion has been erased in shareholder value over the past two days.