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ASX to plunge to end the week

Timothy Moore
Australian shares are poised to drop to end the week amid concern global central banks will be challenged by persistently high inflation and slowing growth.

In New York, the Dow fell more than 1300 points at one point, more than reversing the previous day’s more than 900 point advance. The trigger for the plunge was a warning from the Bank of England and a hangover from the Federal Reserve’s rate move and rate outlook.

ASX futures were down 114 points or 1.6 per cent to 7212 near 6.25am AEST. In New York, the Dow ended down 1063 points to 32,997.

• On Wall St: Dow -3.1% S&P 500 -3.6% Nasdaq -5%
• In New York: BHP -5% Rio -4% Atlassian -9.4%
• Tesla -8.3% Apple -5.6% Amazon -7.6% Meta -6.8%
• Alphabet 4.8% Microsoft 4.4% Netflix -7.7% NYSE Fang -6.4%

“The market is in the process of re-calibrating and finding an equilibrium and multiple at which investors will begin investing,” said Quincy Krosby, LPL Financial’s chief equity strategist, adding that for now: “This remains a trader’s market.”

“Global inflationary pressures have intensified sharply in the buildup to and following the invasion,” Andrew Bailey, governor of the Bank of England, said after a policy meeting in London. “This has led to a material deterioration in the outlook.”

The central bank predicts the inflation rate will peak above 10 per cent in the last quarter of the year, when household energy bills will increase again when the government’s energy price cap is reset in October. Ten per cent would be the highest rate since 1982.
The rapidly changing landscape was reflected in the prospects for economic growth. In 2023, the bank now predicts, the economy will shrink 0.25 per cent, instead of growing 1.25 per cent, which it predicted three months ago.

TD Securities said the 2023 contraction ” is effectively a forecast of a recession”, though it does not meet the technical definition as yet.

The Bank of England’s bleak outlook led investors to rethink their previous session’s optimism that at least the US Federal Reserve was not considering a 75 basis point increase. The Fed still plans to lift rates substantially higher by the end of 2022.
“Midterm US election years typically see the S&P 500 with an average drawdown of 17 per cent,” said John Lynch, CIO for for Comerica Wealth Management. “We’re not there yet, but a move of that historical magnitude would take us from the January 4th high (about 4800) to about 4000.”

The S&P 500 settled at 4146.87. Consumer discretionary fell 5.8 per cent, leading all 11 of the S&P 500’s industry sectors lower. Information tech fell 4.9 per cent; communication services fell 4.1 per cent; materials fell 3.1 per cent; and, financials slid 2.9 per cent.

“Feels like a general deleveraging,” Mohamed El-Erian said in a tweet. “Key issue now: Do today’s losses trigger further deleveraging via one or more of the usual channels: risk aversion, margin calls, pain trades, etc”

The local currency was 2.1 per cent lower; the Bloomberg dollar spot index leapt 0.9 per cent. Bitcoin fell 8.9 per cent to $US36,246.69 on bitstamp.net near 6.10am AEST.

The yield on the US 10-year note was 10 basis points higher to 3.04 per cent at 4.06pm in New York.