The ASX is set to dive more than 3% or over 180 points at the opening this morning after the long rally on global markets since their late March lows was halted on Thursday.
The ASX 200 futures market had a 185 point loss pencilled in at 7am Sydney time after Wall Street fell out of bed and slumped close to 6%.
The Dow plunged 1,861.82 points, or 6.9%, to 25,128.17 – the index’s worst daily drop since March 16. All 30 of the blue-chip index’s components fell.
The S&P 500 slumped 188.04 points, or 5.9%, to finish at 3,002.10, led by the slump in energy shares and banks. That means a weak day for local energy and banking stocks and other financials on the ASX today
And a day after closing above 10,000 points for the first time, the Nasdaq slid 527.62 points, or 5.3%, to end at 9,492.73.
In Europe all markets fell with the Stoxx 600 index losing 4.1%. That was after the sell off in Asia of which the 3% plus fall in the ASX 200 was one of the largest.
On Thursday, the ASX slumped 3.1% as investors realised the latest economic forecasts from the US Federal Reserve were closer to reality than the pie in the sky stuff being put out by investment banks, brokers and other spruikers.
Global economies are weak, unemployment is high and will take longer to reduce than the optimists believe, economic growth is tepid at best, recessionary at worst and even though more and more big Australian retailers are reporting very solid sales growth (JB Hi Fi, Harvey Norman, Wesfarmers, Kogan) they do not necessarily represent all retailing or the wider economy.
Many thoughtful analysts have been wondering when the rapid rebound from around March 23/24 (when most lows were hit) would fun out of puff as the continuing realities of the COVID-19 pandemic, growing political instability in the US and weak economic conditions moved back into focus.
The S&P 500 had jumped 44.5% between late March and Monday. The ASX 200 also made a very solid gain of more than 30%.
But Wednesday’s post meeting statement, economic forecasts and the media conference after the Fed’s latest meeting proved to be the catalyst for the new slide.
The Fed estimated that the US economy will shrink 6.5% this year, before expanding 5% in 2021 and leaving it around 1.5% under the end of 2019 level.
The Fed also expects the unemployment rate at 9.3% at the end of 2020 (near the peak of the GFC recession). The rate is now 13.3%, up from 3.5% at the start of the year. The jobless rate will fall to 5.5% by the end of 201, leaving it two percentage points higher than in January.
And Fed chair Jay Powell made it clear the central bank will not be changing its key interest rate any time soon and expects it to remain around the current 0% to 0.25% range for the next few years.
That saw US bond yields ease on Wednesday afternoon, then fall sharply on Thursday as risk moved back to centre stake.The yield on the 10-year Treasury yield slid to 0.66% from 0.74% late Wednesday, a big move. and finished at 0.67%.
Last Friday it briefly rose above 0.90%, so the readjustment downwards has been dramatic in just five trading days.
The price of oil also dropped as investors again worried that a slumping economy would need less energy.
West Texas Intermediate crude for July delivery, fell $US3.26, or 8.2%, at $US36.34 a barrel in New York, after rising 1.7% and marking its highest settlement since March 6 on Wednesday.
Global marker, Brent oil for August delivery lost $US3.18, or 7.6%, at $US38.55 a barrel in Europe, following a 1.3% gain on Wednesday.
Iron ore prices were steady, dipping just 19 cents to $US103.74 for 62% Fe fines delivered to northern China. Chinese economic data today will include production, investment and retail sales with the focus on crude steel output.
Gold prices rose, as did silver, but copper slid, ending its recent rally.
Comex August gold rose $US19.10, or 1.1%, to settle at $US1,739.80 an ounce; Comex July silver was up 9 cents, or 0.5%, at $US17.889 an ounce.
Comex July copper shed 7 cents, or 2.6%, at $US2.5865 a pound, after gaining 2.2%, on Wednesday.
Brokers said nearly all of the companies in the S&P 500 were down as technology, financial, industrial and health care stocks slumped. Energy stocks were the biggest losers as crude oil prices fell sharply.
In fact only one of the 500 stocks in the S&P rose – US supermarkets chain, Kroger whose shares ended 0.4% higher in a lonely show of optimism.
Fears about a second wave of COVID-19 infections are rising in the US where, Texas and Florida were among the states reporting jumps in the number of coronavirus cases after precautions were relaxed last month.
The total number of US cases has now topped 2 million, and cases are rising in nearly half the 50 states.
And adding to the Fed’s gloomy forecasts another 1.5 million people applied for US unemployment benefits last week.
While that was smaller than a week ago, it is still well above long term averages and a sign that many Americans are still losing their jobs even as the economy begins to gradually reopen.
