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The Australian sharemarket tumbled deep into the red as “booming” GDP growth bypassed households forced to tap savings to maintain consumption.
The S&P-ASX 200 index was down 0.5 per cent before June-quarter GDP growth of 0.9 per cent was reported, 3.4 per cent on an annual basis as strong government spending.
But it sold off to close down 62.7 points, or one per cent, at 6230.4 with miners leading losses following steep losses in base metals last night and the banks falling on mounting bad-debt risks as household savings buffers eroded.
UBS economist George Tharenou said consumers were “unsustainably spending” almost every dollar of their savings to maintain “soft” consumption levels.
He said growth was boosted by solid consumption that was reliant on an “incredible and unsustainable” drop in the household saving ratio. Looking ahead, we expect macroprudential tightening to cause falling house prices & a fading household wealth effect, seeing consumption (and hence GDP) moderate.
Westpac economist Andrew Hanlan said “expenditure detail for the June quarter is less impressive than the headline result, as are the details around household income” after real-wages growth was just 0.3 per cent for the year.
The Australian dollar initially jumped US0.3¢ on the news before sliding back to unchanged at US71.80¢ as investors looked through the headline number to see the need for rate cuts to offset the impact of falling house prices and credit slowdown.
Government 10-year bond yields were up 4.2 points at 2.566 per cent after US 10-years climbed 4 points to 2.90 per cent.
The sell-off in global bonds coincided with fresh weakness in emerging-market currencies and industrial commodities, suggesting the bond selling for US dollars was by central banks needing US dollars to support their currencies.
The Shanghai composite index was down 0.9 per cent at the close of the ASX and the yuan weakened slightly too in a sign that the People’s Bank of China had been unable to deter yuan sellers for long with a raft of measures two weeks ago.
The Nasdaq slid on Wednesday, on pace for its biggest one-day drop in three weeks, as investors sold off technology stocks on concerns stemming from U.S. lawmakers grilling Twitter and Facebook executives over foreign efforts to tilt U.S. politics.
The broader market was also weighed by a drop in energy stocks as oil prices weakened and fears over the likelihood of the United States slapping new tariffs on Chinese goods as early as this week.
Twitter (TWTR.N) dropped 4.7 percent and Facebook (FB.O) fell 1.6 percent as their top executives defended their companies to skeptical U.S. lawmakers.
Alphabet (GOOGL.O), whose offer to send its chief legal officer to Congress rather than its chief executive officer was declined, slid 1.2 percent. Snapchat-parent Snap Inc (SNAP.N) was down 3.5 percent.
“Typically when companies testify in Congress the headlines are not going to be good, so it provides an opportunity for investors in the short term to sell and catch some profits,” said Brant Houston, managing director of CIBC Private Wealth Management in Denver, Colorado.
Houston said nervousness around the likelihood of stricter regulation was also weighing on social media companies, whose stocks have been among the best performers this year.
The technology sector .SPLRCT, the biggest gainer among the 11 S&P sectors this year, sank 1.27 percent on Wednesday. Seven of the 11 major sectors were higher, led by roughly 1 percent gains in the defensive consumer staples .SPLRCS and utilities .SPLRCU sectors.
“It seems the tech sell off is part of a broader rotation into more defensive sectors,” said Atlantic Equities analyst James Cordwell.
“With the ongoing trade war and potential signs of stress in the Chinese economy, there are certainly factors out there to have made investors return from their vacations feeling a bit more cautious than when they went away.”
With concerns over trade simmering, Commerce Department data showed that the U.S. trade deficit hit a five-month high in July, suggesting the Trump administration’s protectionist policy was so far not having an impact.
The data comes amid concerns that a U.S. proposal to slap tariffs on $200 billion more in Chinese imports could be effective as soon as a public comment period ends on Sept. 6, even as the U.S.-Canada talks to salvage the North American Free Trade Agreement continue.
At 13:07 a.m. ET the Dow Jones Industrial Average .DJI was up 11.20 points, or 0.04 percent, at 25,963.68, the S&P 500 .SPX was down 8.97 points, or 0.31 percent, at 2,887.75 and the Nasdaq Composite .IXIC was down 85.09 points, or 1.05 percent, at 8,006.16.
Declining issues outnumbered advancers for a 1.48-to-1 ratio on the NYSE and a 1.92-to-1 ratio on the Nasdaq.
The S&P index recorded 38 new 52-week highs and nine new lows, while the Nasdaq recorded 76 new highs and 42 new lows.
Source: Netwealth Morning Business Roundup
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