Source : THE AGE NEWS
By Clancy Yeates
Investors have wiped close to $80 billion off the value of Australian shares in two days, amid fears Donald Trump’s trade war will inflict a hefty toll on the world economy, which could push central banks to respond by slashing interest rates.
The ASX 200 fell 2.4 per cent on Friday, a decline worth about $57 billion in market value, after Wall Street’s benchmark index had its worst session since the start of the COVID-19 pandemic on Thursday night.
Repercussions from US President Donald Trump’s sweeping tariff announcements spread across global markets.Credit: AP
That comes on top of Thursday’s slide, in which about $21 billion was wiped off the ASX, also in response to Trump’s tariff plan.
The sharp falls on equity markets have been sparked by worries about the damage Trump’s “Liberation Day” tariffs unveiled this week could do to economies across continents, including his own.
Ten of the ASX’s 11 sectors fell, with energy companies tanking after a fall in the oil price and tech stocks dropping sharply after US tech giants plummeted overnight.
ANZ economists on Friday upped their prediction for rate cuts this year, tipping three reductions in the cash rate from the Reserve Bank rate between now and August. The economists said they “would not rule out” a 0.5 percentage point reduction at the Reserve Bank’s meeting next month.
‘I think we are going to see choppy, volatile conditions for probably the rest of the year, if not longer than that.’
Omkar Joshi, Opal Capital chief investment officer
Energy stocks plummeted on Friday, with oil and gas giant Woodside dropping 9.1 per cent and Santos sliding 9.4 per cent after a fall in the oil price and fears for the economic growth outlook.
The local technology sector was also hit hard after big falls in the US tech giants overnight, with data centre business NextDC dropping 6.4 per cent and WiseTech plunging 8.5 per cent.
The major banks also fell sharply, with Commonwealth Bank shedding 1.5 per cent, National Australia Bank losing 1.4 per cent, Westpac losing 2.4 per cent and ANZ falling 3.7 per cent.
Opal Capital chief investment officer Omkar Joshi said investors were spooked by the economic damage that would be inflicted by the sweeping tariffs Trump announced this week.
Joshi said that although interest rate cuts were now seen as more likely, this was not boosting sentiment because any rate cuts would be in response to a weakening economic outlook.
“I think we are going to see choppy, volatile conditions for probably the rest of the year, if not longer than that. It’s going to be driven by a lot of macro news, and a lot of policy announcements,” Joshi said.
Some companies with heavy tariff exposure fell sharply for the second day in a row, with fashion retailer Cettire dropping 8.1 per cent and appliance maker Breville dropping 12 per cent. Medical glove maker Ansell, which makes 43 per cent of its revenue in the US, gained 3 per cent after it told investors it planned to offset the tariff increases through pricing.
Despite the volatility, investment giant AustralianSuper this week said it remains committed to US investments, and some investors say there are opportunities in the current environment.
Atlas Funds Management chief investment officer Hugh Dive said macroeconomic concerns were driving the market moves and many companies had limited exposure to Trump’s tariffs.
“Eventually, investors are going to start stepping back and saying: ‘What’s really going to be the impact on these companies’ earnings and dividends?’”
“There’s a lot of panic going on, and it’s presenting a lot of opportunities.”
Mining giants were mixed, with Rio Tinto rising 0.7 per cent, BHP falling 0.5 per cent and Fortescue falling 0.6 per cent.
Overnight, the S&P 500 sank 4.8 per cent and the Nasdaq 100 slumped 6 per cent, the biggest drop since 2020 for each, wiping about $US2.5 trillion ($4 trillion) from the US sharemarket. The Dow Jones dropped 1679 points, or 4 per cent. Tech darlings Apple (down 9.3 per cent) and Nvidia (down 7.8 per cent) were among those suffering heavy losses.
Little was spared in financial markets as fear flared about the potentially toxic mix of weakening economic growth and higher inflation that tariffs can create.
Even gold, which hit records recently as investors sought something safer to own, pulled lower. Some of the worst hits walloped smaller US companies, and the Russell 2000 index of smaller stocks dropped 6.6 per cent to pull more than 20 per cent below its record.
Investors worldwide knew Trump was going to announce a sweeping set of tariffs late on Wednesday, and fears surrounding it had already pulled Wall Street’s main measure of health, the S&P 500 index, 10 per cent below its all-time high. But Trump still managed to surprise them with “the worst-case scenario for tariffs”, said Mary Ann Bartels, chief investment officer at Sanctuary Wealth.
Trump announced a minimum tariff of 10 per cent on imports, with the tax rate running much higher on products from certain countries such as China and those from the European Union. It’s “plausible” the tariffs altogether, which would rival levels unseen in roughly a century, could knock down US economic growth by 2 percentage points this year and raise inflation close to 5 per cent, UBS said.
Such a hit would be so big it “makes one’s rational mind regard the possibility of them sticking as low”, said Bhanu Baweja and other strategists at UBS.
Wall Street had long assumed Trump would use tariffs merely as a tool for negotiations with other countries, rather than as a long-term policy. But Wednesday’s announcement may suggest Trump sees tariffs more as helping to solve an ideological goal than as an opening bet in a poker game. On Wednesday Trump had talked of wresting manufacturing jobs back to the US, a process that could take years.
If Trump follows through on his tariffs, share prices may need to fall much more than 10 per cent from their all-time high to reflect the recession that could follow, along with the hit to profits that US companies could take. The S&P 500 is now down 11.8 per cent from its record set in February.
With AP, Bloomberg
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