ASX 200 Faces Steep Decline Amid Nasdaq Bear Market and Australian Dollar Plunge

Highlight 

• ASX 200 futures signal a sharp 4.5% drop, tracking heavy Wall Street losses and global panic. 
• Nasdaq officially enters bear market; S&P 500 endures worst two-day slide since March 2020. 
• Australian dollar falls to lowest level since 2020, while commodities collapse across the board. 

The Australian sharemarket is bracing for a steep decline as ASX 200 futures slide 331 points or 4.48%, following a brutal sell-off on Wall Street that saw the Nasdaq plunge into bear market territory. The S&P 500 endured its worst two-day performance since the onset of the COVID-19 pandemic in March 2020. The Australian dollar has fallen to 59.8 US cents—its lowest since March 2020—adding further pressure on investor sentiment amid global economic uncertainty and an intensifying trade war. 

In the US, major indices were hammered across the board. Over the week, the Nasdaq Composite dropped 10.02%, Russell 2000 fell 9.7%, S&P 500 shed 9.08%, and the Dow Jones Industrial Average declined by 7.86%. A significant escalation in trade tensions has added to the global market rout. Late Friday, China retaliated with a sweeping 34% tariff on all US imports, prompting concerns of further economic deterioration. The S&P 500 opened 1.93% lower on Friday and ended down 5.97%. The Nasdaq is now down 22% from its February peak, officially entering bear market territory, while the Russell 2000 has slumped 25% from its November 2024 highs. The S&P 500 is teetering on the brink of a bear market, currently off 17.4% from its February high. 

Volatility spiked dramatically, with the CBOE Volatility Index (VIX) closing at 45—the highest level since August 2024. However, it remains below the peak of 65 witnessed in August and well under the COVID-19 high of 85. Compounding market stress, Federal Reserve Chair Jerome Powell signalled over the weekend that the US central bank is in no rush to cut interest rates. This cautious tone has added to concerns of prolonged tightening despite deteriorating financial conditions. Federal Reserve Governor Lisa Cook also highlighted upside inflation risks and the likelihood of weaker growth, reinforcing the need for policy patience. These comments come amid rising concerns of a global recession, with JPMorgan raising its probability estimate to 60% from 40%. 

In credit markets, US junk bond yield spreads widened the most since March 2020, a clear indicator of mounting risk aversion. Commodity markets also faced significant declines, with copper falling 8.7% and oil sliding 5.5% on Friday. Even gold, often seen as a safe haven, experienced a 2.4% decline. These sharp moves are continuing into Monday’s trading session, with copper dropping another 5.3% and Brent crude losing a further 3.6%. Major commodity-reliant sectors such as copper miners, gold miners, and rare earths producers are likely to face heightened volatility. Recent ETF tracking reveals copper miners fell 10.2%, gold miners declined 8.8%, and rare earth/strategic metal sectors slid 7.7%. 

In Australia, macroeconomic conditions show subdued resilience. Household spending in January edged up 0.2%, below the consensus of 0.3%, reflecting weak discretionary consumption despite previous rate cuts by the Reserve Bank of Australia. Meanwhile, the US March non-farm payroll report showed a 228,000 increase in employment, exceeding expectations, but with a slight uptick in unemployment to 4.2%. While labour market data appears solid, forward-looking indicators reflect growing strain. The Dallas Fed estimates that US tariffs could subtract 1.5% from Texas’s economic growth, potentially eliminating up to 100,000 jobs. 

In global energy markets, Goldman Sachs revised down its oil forecasts due to the dual threat of increased OPEC+ supply and fears of a global economic slowdown triggered by the escalating US-China trade conflict. The broader commodity space suffered its steepest decline since 2022, further highlighting the scale of investor retreat from risk assets. 

Central banks across Asia are preparing to step in with policy easing. The Reserve Bank of New Zealand is expected to cut interest rates in the coming days and signal additional easing ahead. Such actions aim to counterbalance the drag caused by slowing global trade and elevated inflation stemming from tariffs. 

Geopolitically, the trade war continues to widen. While China has taken direct retaliatory steps, other countries are responding with a mix of diplomacy and economic countermeasures. Canada has introduced a 25% tariff on US auto imports. France’s leadership has urged EU firms to halt US investments. Taiwan has suggested zero tariffs as a basis for negotiations, while India and Indonesia prefer dialogue over retaliation. The Trump administration remains firm on tariffs, with officials reiterating there will be no last-minute exemptions. Trump has expressed openness to discussions if favourable offers are presented and indicated that a deal involving TikTok could open avenues for limited tariff relief. 

In Australia, the ASX 200 is now expected to mirror global losses. Past drawdowns offer context: during the February–March 2020 crash, the index plunged nearly 38%, although it also staged temporary rebounds of over 3% and 5% during the turmoil. The key issue facing investors is whether the current gap-down pricing will mark a bottom or if continued liquidation will drive valuations lower. Fear indicators such as the VIX and extreme technical readings suggest the market may be oversold. Yet the broader macro landscape—featuring geopolitical risk, surging volatility, and faltering global trade—points to an environment of sustained caution. 

ASX-listed resource companies, particularly those tied to copper, gold, and energy, could face further downward pressure. Firms such as BHP Group Ltd (ASX:BHP), Rio Tinto Ltd (ASX:RIO), Northern Star Resources Ltd (ASX:NST), Evolution Mining Ltd (ASX:EVN), and Lynas Rare Earths Ltd (ASX:LYC) may see increased market focus due to their sensitivity to commodity prices. Broader index pressure is also expected to hit financials and consumer-exposed names, given weak domestic spending trends and global capital outflows. 

In conclusion, the outlook remains fragile, driven by a combination of policy rigidity from major central banks, persistent trade friction between the world’s largest economies, and accelerating capital flight from risk assets. The ASX 200 is set to start the week on a deeply negative note, mirroring global turmoil and heightened economic uncertainty. Upcoming central bank decisions, further clarity on trade policies, and the durability of corporate earnings across sectors will be crucial in shaping market sentiment over the weeks ahead.