The Aussie market will start trading today with an 87 point or nearly 2% sell-off pencilled in by trading in the ASX 200 index on Saturday morning in the wake of the big sell-off on Wall Street.
A fall of that size will take the fall in the local market since its most recent high to 20%, meaning we will join Chinese and eurozone markets in correcting into the arms of the bear.
The Japanese market will follow today if the fall is around 2%, as the futures market is signalling.
That will be after the local market fell last week as markets in China and the US led the way lower and there’s more of the same ahead this week with the final round of Chinese economic data for December and 2015 (including GDP) out tomorrow and likely to dominate fragile markets.
US shares lost 2.2% last week, Eurozone shares fell 2.9%, Japanese shares lost 3.5%, Chinese shares lost 9% and Australian shares fell 2%.
And the Aussie dollar weakened late in the week, closing well under 68 US cents and at new multi-year lows around 68.64 cents.
But markets will start with a handicap with much of Wall Street (including shares) closed or trading on reduced hours tonight because of the Martin Luther King public holiday.
Given the frailty of investor confidence at the moment, that’s likely to see traders play safe in Asia today and tomorrow and in Europe tonight, so some more big falls are in prospect.
So there will be no dealings in the US tonight to confirm or trigger a new direction at a time when investors are wondering if the current sell-off has more to run.
Eurozone shares have already slipped into bear market territory with a decline of 20.4% from last year’s high, Australian shares and Japanese shares are down 18% and US shares are off 12% from their 2015 highs.
The AMP’s chief economist Dr Shane Oliver says that with “worries about global growth likely to linger we could still see more downside in share markets in the short term that could see developed markets including Australian shares follow emerging markets into a bear market”.
But he also points out that there a number of indicators still positive for shares such as most economic data remains positive (although he’s not so sure about US retail sales which again disappointed in December) and there appears to be considerable growth momentum building from the slide in commodity prices, especially oil.
But in the meantime, the sell-off seems to have more to go, as we saw in the US last week. Hopes for a steadying in the markets went out the door in the massive global sell-off on Friday, as renewed concerns about the Chinese economy, the relentless drop in crude prices and disappointing retail sales in the US combined to drive falls across the board.
The sell-off in the S&P 500 took the index’s decline last week to 2.2% at 1,880.29 – the lowest level since last August. This was the benchmark index’s third consecutive weekly decline – its longest (weekly) losing streak since July.
The Dow also fell 2.2% to 15,988.08 and the Nasdaq Composite fell 3.3% to 4,488.42 on the week — its lowest level in 14 months, as the mergers boom was popped and fears about cost-cutting by government continued to rise.
US markets are now down by 7% or more in the first two weeks of the year.
But it wasn’t just a lousy day for equities, there was weakness across the board in all markets, especially currencies.
In energy markets, West Texas Intermediate, the US marker crude, fell 5.7% on Friday to close below $US30 for the first time since late 2003. That was down 11% for the week.
Meanwhile, Brent settled at $US28.94, down 6.3% for the day and 14% for the week.
Commodity currencies were also whacked – the Aussie dollar lost 1.7% to its lowest level since April 2009, the Mexican peso tumbled 2.3% to a new record low of 18.29 per dollar, the Canadian dollar weakened past 1.45 per dollar for the first time since April 2003.
And Brazil’s Bovespa stock index fell to its weakest level in nearly 7 years following Friday’s 2.4% slump.The Brazilian economy remains in deep recession.
European shares fell into a bear market and the Shanghai Composite Index wiped out gains from the state-rescue campaign last year in the worst start to a year on record for global stocks.
The Shanghai Composite closed 3.6% lower at 2,901 points, dropping through the 3,000-point barrier, and to the index’s lowest close since December 9, 2014. It was a fall of 9% for the week.
That takes declines since a recent high on December 22 to 20.6%, dragging the index into a bear market.
Since the multi-year high last June of 5,166.4, the Shanghai Composite has fallen 44%.
The tech-focused Shenzhen Composite lost 3.4% on Friday and 9.2% over the week. From its recent December 22 high, the index is now down 24.5%. It first entered a bear market last Friday.
Shenzhen stocks are down 42.8% from their record high in June, but are still sitting about 12% above their September low of 1,580.3.
The CSI 300, which combines the top blue chips from both exchanges, lost 3.2% on Friday and 7.2% for the week.
In Australia, shares suffered a second week of hefty losses as the ongoing global commodities rout and worries around China dragged the market down to its lowest since mid-2013.
After an early rally on Friday, the local market sold off as the impact of the strong overnight bounce on Wall Street and higher crude oil and iron ore prices faded in the face of another slide in Chinese markets.
The ASX200 fell 0.3% on Friday and 2% for the week to end at 4,892.8, while the All Ordinaries fell a similar amount to 4,948.5.
