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The Australian share market experienced a sharp decline by midday on Wednesday, following Wall Street’s worst session since early August due to concerns about a slowdown in the US economy.
By 12:18 pm AEST, the S&P/ASX 200 had dropped 144.6 points, or 1.8%, to 7958.60, with all sectors trading in negative territory. Energy stocks, miners, and IT firms recorded the largest losses, with sector declines ranging from 2.4% to 3%.
The downturn in the Australian market was exacerbated by the release of weaker-than-expected GDP figures, which revealed the national economy grew just 0.2% in the three months to June as high-interest rates curtailed consumer spending on discretionary items. Although the Australian Bureau of Statistics reported that the local economy expanded for the 11th consecutive quarter, annual growth slowed to 1% for the 2023-24 period.
Stephen Smith, a partner at Deloitte Access Economics, commented that the economy remains fragile, with growth at its slowest pace since the early 1990s outside of the pandemic. The private sector, according to Smith, is facing conditions similar to a recession, with government spending being the primary driver of growth.
Mining giants like BHP and Rio Tinto saw sharp declines of 2% and 2.6%, respectively, as iron ore prices continued to fall, down 3.5% to $US93.45 per tonne overnight. Fortescue Metals Group lost 3.8% as its shares began trading without the rights to its latest dividend.
Financial stocks also slumped, with all four major banks in the red. Commonwealth Bank dropped 2.1%, NAB fell 2.8%, Westpac slid 1.9%, and ANZ decreased by 1.6%. Macquarie Bank, often dubbed the "Millionaires’ Factory," was down 1.4%.
Tech stocks followed the lead of their US counterparts, with WiseTech dropping 2%, Xero down 3.1%, and NEXTDC declining 3.6%. Meanwhile, Orora led the gains, rising 6.6% after announcing the sale of its North American packaging business for $1.8 billion to Veritiv Corporation. Only a few companies were trading positively, including Auckland International Airport and Resmed, up 0.8% and 0.4%, respectively.
The Australian dollar fell, trading at 67.02 US cents at 12:29 pm AEST.
On Wall Street, the S&P 500 dropped more than 2% overnight as concerns about growth and monetary policy spooked investors. The Nasdaq 100 slid 3.3%, and the Dow Jones fell 1.5%. The VanEck Semiconductor ETF saw its largest decline since March 2020, with Nvidia down 9.5%, and Boeing down 7.3% following an analyst downgrade.
While inflation expectations are relatively stable, the focus has shifted to the health of the US economy, as signs of weakness could prompt further policy easing. Traders are anticipating a significant reduction in the Federal Reserve's interest rate by more than two percentage points over the next year, which would be the steepest cut outside a downturn since the 1980s.
Analysts at Glenmede suggest that the upcoming jobs report will be crucial in determining whether the Fed opts for a 25 or 50 basis-point rate cut. Meanwhile, Treasury yields fell, and market participants continue to speculate about the Fed's next moves amid economic uncertainties.
