ASX falls as global recession fears sour sentiment

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The lowdown: After opening Wednesday’s session on the back foot, the local bourse only sank deeper into the red, as recession rhetoric from major US banks and hawkish comments from the RBA spread negative sentiment among investors.

Shaw and Partners senior investment advisor Craig Sidney said though he expected losses, he was somewhat surprised by the degree of weakness throughout the session.

“We’ve lost 100 points in two days,” Sidney said. “The Asian markets tend to be faring a bit better. Most are down, but Hong Kong’s [Hang Seng Index] marginally positive. We’re certainly one of the weakest markets across Asia.”

Despite strength in iron ore stocks bolstering heavyweight miners such as BHP and Rio Tinto, as well as gains among lithium companies and high interest rate beneficiaries such as insurance firms, Sidney said the index ostensibly remained a sea of red. This weakness could be partly attributed to Wall Street’s sell-off overnight with the S&P falling 1.9 per cent and the NASDAQ 2.4 per cent.

Global equity markets suffered after warnings of a recession due to ballooning inflation and a possible price-wage spiral from the heads of major US banks such as Goldman Sachs, JPMorgan Chase, and Bank of America.

Additionally, Bloomberg Economics forecast that global growth in 2023 would be the weakest since 1993, reaching only 2.4 per cent. Meanwhile, the rating agency’s Global Economic Outlook report estimated global growth at 1.4 per cent, revised down from 1.7 per cent in its September forecast.

Also weighing on global equities were China’s imports and exports, which shrank in November, according to a report released on Wednesday, causing Chinese stocks to slip and spurring concerns that the country’s COVID-19 restrictions would not be eased fast enough to re-introduce strong global demand.

Locally, the RBA’s eighth consecutive rate rise on Tuesday, lifting the cash rate to 3.1 per cent, brought the cumulative increase to 300 basis points since May.

“They’re trying to curtail the economy,” said Sidney. “They bring [rates] up to try and reduce inflation, but people are still spending. It’s only about a third of people that have mortgages, and unemployment is still particularly low. So, coming into Christmas people are still spending money on gifts, entertainment, travel and this probably doesn’t help inflation.”

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Head of Australian economics at ANZ David Plank said Lowe’s comments following the increase, which included a warning that further rises were expected but that they were not on a “pre-set course”, supported ANZ’s expectations that the cash rate target will rise to 3.85 per cent by May 2023.

“While each move from here will be data-dependent, we think the key numbers such as CPI and wages will leave the RBA with little option but to tighten further,” said Plank.

Meanwhile, the Australian Bureau of Statistics released third quarter Gross Domestic Product (GDP) data on Wednesday, which revealed the national economy had grown by 0.6 per cent in the September quarter – a strong result following weaker data during periods including COVID-19 lockdowns. Annual real GDP growth increased from 3.6 per cent to 5.9 per cent, mainly driven by strength in household spending.

Sidney said the GDP data supported expectations of further interest rate rises as people continued to inject money into the expanding economy, particularly during the festive season.

The local dollar dropped by 0.2 per cent to 66.88 US cents on the back of further weakness within US equities.

Tweet of the day:

Quote of the day: “Crypto is a complete sideshow,” said JPMorgan Chase chief executive Jamie Dimon told CNBC overnight (local time) in response to the collapse of crypto exchange FTX, which triggered a relative meltdown across the crypto space. “Crypto tokens are like pet rocks. That doesn’t mean blockchain isn’t real, that doesn’t mean smart contracts won’t be real, or Web 3.0. But cryptocurrencies that don’t do anything, I don’t understand why people are spending their time [on them].”

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With AP

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