ASX 200 tumbles 5% in broad selloff as recession fears mount

Highlights

• ASX 200 fell as much as 5% to 6,585.20 points in opening trade with all the 11 sectors declining
• Market sentiments turned sour after the announcement of US inflation data last Friday
• A drop in iron ore prices following concerns over fresh COVID-19 outbreaks in China weighed on materials sector

Australian equity market declined sharply on Tuesday (14 June 2022) as concerns mount that the US Fed’s efforts to bring down inflation with higher rates could lead to a recession, sparking a fresh round of selloff in global equities. The benchmark ASX 200 index plunged 5.00% amid broad-based selling to 6,585.20 points in the initial minutes of trading today as markets resumed trading after a long weekend. With today’s fall, the ASX benchmark set a fresh 50-day low. ASX stocks followed dismal performance of the US stocks on Wall Street in the last two trading sessions. The ASX All Ordinaries index was 4.99% lower at 6,789.0 points. 

Global equities declined sharply on Monday and Friday after the US inflation, announced on Friday, rose to a fresh 40-year high, sparking fears of even a 75-basis points rate hike by the Fed in its meeting this week. Till Friday, markets were pricing a 50 basis points rate hike by the US central bank in its meeting this week. But after Friday's inflation reading many market experts are now expecting the US Fed to increase key rates by 75 basis points this week.

 After a disappointing performance on Friday last week, all three US indices fell sharply on Monday (13 June). The S&P 500 plunged 3.88% at 3,749.63 points, the tech-heavy Nasdaq Composite Index dropped 4.68% to 10,809.23 points, while the Dow Jones Industrial Average closed 2.79% lower at 30,516.74 points. With Monday’s fall, the S&P 500 index slipped into a bear market for the first time since 2020, declining 22% from its January 2022 peak. Meanwhile, the pan-European Stoxx Europe 600 fell 2.41% yesterday.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.0% in May on a seasonally adjusted basis after rising 0.3% in April, said the US Bureau of Labor Statistics on Friday. On an annual basis, in May 2022, the CPI rose 8.6%, the biggest increase since 1981.

The figures jolted markets and came as a big blow to the investors hoping for relaxation in the interest rates by the US central bank in this week’s meeting.

On Monday, shares of US tech giants, including Apple Inc, Amazon.com, and Meta platforms, declined drastically, plunging 3.83%, 5.45%, and 6.44%. This is likely impacting the performance of domestic tech stocks today.  

On the sectoral front, the Australian equities followed a bearish trend today as all the 11 sectors were trading in the red territory. Sectors including Information technology, consumer discretionary, Materials, Energy, and Financials, among others, led to the losses in the overall market today.

A drop in iron ore prices following concerns over fresh COVID-19 outbreaks in China seems to have pulled down the materials sector. Gold prices have also fallen, given the stark rise in treasury yields and a firmer dollar.

Meanwhile, the financials fared poorly as the shares of four banking giants Commonwealth Bank of Australia (ASX:CBA), Westpac Banking Corporation (ASX:WBC), Australia and New Zealand Banking Group Limited (ASX:ANZ), and National Australia Bank Limited (ASX:NAB) were down 4.79%, 5.32%, 5.22% and 5.27% respectively. 

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Newsmakers:

Lynas Rare Earths Limited (ASX:LYC):

The share price of rare-earths mining company Lynas Rare Earths Limited caught investors’ attention on Tuesday (14 June) after the company revealed that it has secured a US$120 million contract to establish a commercial heavy rare earths separation facility in the US.

As per the announcement, in this regard, Lynas’s wholly-owned subsidiary, Lynas USA LLC, has signed a follow-on contract for nearly US$120 million with the US Department of Defense (DoD). 

 WestGold Resources Ltd (ASX:WGX):

Shares of ASX-listed Gold mining and exploration company WestGold Resources Ltd were on investors’ radar today after the company announced May 2022 as a record month of gold production from its Bryah and Murchison operations. In a new record, the company has reported the gold production of 25,100oz in May, up from 23,969oz in April. 

Market Action: 

Coming to the top ASX 200 gainers, Uniti Group Limited (ASX:UWL), and Crown Resorts Limited (ASX:CWN) led the pack with 0.101% and 0.076% gains, respectively. On the flip side, ZIP Co Limited (ASX:ZIP), and Novonix Limited (ASX:NVX) were the top losers, falling 20.635% and 14.470%, respectively.

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