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Australian shares experienced a sharp decline on Monday and are poised to extend their losses for a second consecutive session. This downturn has been fueled by weak U.S. jobs data, which has heightened recession fears and left investors adopting a cautious stance ahead of upcoming interest rate decisions both in the U.S. and Australia.
As of 00:39 GMT, the S&P/ASX 200 index (AXJO) was down 2.6% at 7,737.3 points, positioning it for its worst intraday performance since September 2022, provided the current trend continues. This follows a 2.1% drop on Friday, underscoring the market's vulnerability to external economic signals and uncertainty.
The weak U.S. payrolls data released on Friday revealed a more pronounced slowdown in the U.S. economy than previously anticipated. This has significantly impacted market expectations, with futures markets now pricing in a more than 70% chance of a 50-basis point cut by the U.S. Federal Reserve in their September meeting. This is a sharp increase from the 22% probability reported just a week earlier, according to CME FedWatch. The prospect of more aggressive rate cuts in the U.S. has added to global market jitters, influencing sentiment in Australian markets.
Meanwhile, the Reserve Bank of Australia (RBA) is expected to keep interest rates unchanged when it meets on Tuesday. According to a Reuters poll, the RBA is anticipated to hold off on any rate cuts until the first quarter of 2025. This expectation adds another layer of uncertainty, as investors weigh the implications of diverging monetary policies between the U.S. and Australia.
The impact on Australian markets has been pronounced. Rate-sensitive financial stocks (AXFJ) dropped 3.2%, potentially marking their worst day since early May 2023 if the trend persists. Shares of Australia's Big Four banks experienced significant declines, ranging from 2.8% to 3.8%, reflecting the broader stress within the financial sector.
The decline in Australian shares mirrors the retreat seen in U.S. markets on Friday. The Dow Jones Industrial Average (DJI) fell by 610.71 points, or 1.51%, ending at 39,737.26 points. The S&P 500 (SPX) lost 100.12 points, or 1.84%, while the Nasdaq (IXIC) experienced a drop of 417.98 points, or 2.43%. These declines underscore the global ripple effect of economic concerns originating from the U.S.
Australian miners (AXMM) also felt the strain, falling 2.6% and reaching their lowest levels since early November 2022. Major mining companies such as BHP (ASX:BHP) and Rio Tinto (ASX:RIO) saw their shares slip 2.1% and 1.8%, respectively, contributing to the sector's broad-based sell-off.
Energy stocks (AXEJ) tracked global oil prices lower, which dropped to an eight-month low amidst U.S. recession fears. The Australian energy sub-index lost 3%, marking its lowest levels since mid-July 2022. Key players in the sector, including Woodside (ASX:WDS) and Santos (ASX:WDS), each saw declines of more than 2%. Brent crude futures fell 0.2% to US$76.66 per barrel, while U.S. West Texas Intermediate (WTI) crude lost 0.33% to $73.28 per barrel.
In New Zealand, the benchmark S&P/NZX 50 index (NZ50) also faced losses, dropping 1.6% to 12,252.63 points.
In summary, Australian shares are under significant pressure, driven by disappointing U.S. economic data and uncertainties surrounding interest rate decisions. As investors brace for further developments, both local and global economic signals will continue to play a crucial role in shaping market trajectories.
