$90 billion has been wiped off the ASX today, extending Friday’s losses, as weak jobs data from the US sparks recession fears and continues to impact global markets.
The S&P/ASX200 dropped 284.40 points or 3.58% to 7,658.80, setting a new 20-day low. he index has lost 3.31% for the last five days, but is virtually unchanged over the last year to date.
Bottom-performing stocks today were Block Inc (NYSE:SQ) and Deep Yellow Ltd (ASX:DYL), down 10.55% and 9.76% respectively.
Looking at the sectors, all were in the red with Information technology taking a 6.44% battering. Consumer Discretionary lost 3.74%, Energy was down over 4% and Financials copped a 4.81% hiding, with the big four banks contributing in a major way during the day (CBA and NAB losing 3.8%, while Westpac dropped 4% and ANZ was 3.6% to the red.
It was a bloodbath for most sectors.
On the small cap front, the S&P/ASX Small Ordinaries lost 4.25% today to 2,895.20. The XSO has lost 4.19% in the last five trading days.
As a comparison, Tokyo stocks plunged more than 7% in early trade on Monday.
Local investors are now anticipating the Reserve Bank of Australia (RBA)’s cash rate decision, to be announced tomorrow. Governor Michele Bullock is expected to maintain the cash rate at 4.35%, following last week's report from the Australian Bureau of Statistics indicating that trimmed mean inflation, the central bank’s preferred measure of core inflation, fell to 3.9% in the June quarter from 4%.
US recession fears grow
US recession fears are intensifying following a surprisingly weak ISM Manufacturing survey and non-farm payrolls data last week.
The data has triggered a significant shift in market sentiment.
The US economy added 114,000 jobs last month, while the jobless rate rose to 4.3%, the highest level since October 2021.
Combined with disappointing results from tech firms Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL) and Intel, the poor data led to share sell-offs at the end of last week. This trend continued in trading across the Asia-Pacific region on Monday.
Apart from during the COVID-19 pandemic, investors had not seen such a weak manufacturing employment gauge since the global financial crisis. The unemployment rate also rose enough to trigger a 'Sahm rule' warning of recession.
Adding to the negative outlook were revelations over the weekend that Warren Buffett’s Berkshire Hathaway (NYSE:BRKa) sold a net US$75.5 billion in stocks during the three months through June, boosting its cash and equivalents to a record US$276.94 billion.
Monday's release of US ISM Services PMI data and the Federal Reserve's Senior Loan Officer Opinion Survey could either reinforce or counteract this negativity.
However, it is important to note that these data points represent only one month and are subject to revision, with Betashares (ASX:BBUS) chief economist, David Bassanese seeing no reason to panic.
"I can’t see a reason for a sudden US lurch into recession," Bassanese said. "As former RBA Governor Ian Macfarlane once observed, recessions usually arise from imbalances or shocks – and the US is not really suffering from either at present, with corporate and household balance sheets still in reasonable shape and inflation almost back to the Fed’s target level."
Bassanese suggests that the US may instead be witnessing an "easing back or ‘re-normalising’ in conditions after the post-COVID pressure cooker environment of extreme labour shortages and stimulus-driven demand”.
"Of course, this negative dynamic could build momentum – inadvertently tipping the economy into at least a brief recession – a risk which the Federal Reserve is likely monitoring closely," he cautioned.
Nate Thooft, senior portfolio manager at Manulife Investment Management, said, “Certainly today’s job data feeds the weakening economy narrative, but I believe the market is overreacting at this point and pricing too much in on rate cuts at this stage. Yes, the economy is weakening, but I am not convinced there is enough evidence that the data so far is a death knell for the economy.”
However, Brian Jacobsen, chief economist at Annex Wealth Management believes a recession is a possibility.
“The Fed is seizing defeat from the jaws of victory. Economic momentum has slowed so much that a rate cut in September will be too little and too late. They’ll have to do something bigger than the traditional cut of a quarter of a percentage point to avert a recession.”
The market looks to be pricing in a 0.5% rate cut at the September policy meeting, which remains a possibility if economic data continue to weaken.
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