A dramatic and surprising expansion of the US’s trade war wiped $45 billion from the local sharemarket on Tuesday, with the hawkish tone from the Reserve Bank of Australia following its decision to hold rates only adding to the market’s pain.
The S&P/ASX 200 Index slid 150 points, or 2.2 per cent, to 6712, the local market’s worst session since August 15 when the inversion of the US yield curve sparked fears a recession was imminent, pushing Australian shares down 2.9 per cent.
Trade wars widen
Tuesday’s slide was sparked fears the trade war would expand beyond China, with the US imposing tariffs on Brazil and Argentina, and threatening tariffs on France.
On Monday, US President Donald Trump announced surprise and immediate tariffs on goods coming from Argentina and Brazil, accusing both countries of devaluing their currencies.
The move caught investors on Wall Street off guard, with the S&P 500 dropping 0.9 per cent, the Dow Jones Industrial Average slipping 1 per cent and the Nasdaq Composite dumping 1.1 per cent.
Adding to the poor sentiment was a surprise fall in US factory activity and construction spending on Monday.
Just prior to the open of the local sharemarket, the Office of the United States Trade Representative announced it was considering 100 per cent tariffs on $US2.4 billion ($3.5 billion) worth of French goods in retaliation against what it says was a discriminatory Digital Services Tax imposed on US technology companies.
Falls across the board
The reaction on the local market to the overnight news was sharp, with just two of the top 200 stocks trading higher at the open and every single sector trading firmly lower.
“It was just a sea of red with just everything down. It’s a pretty broad sell-off,” said Atlas Funds Management chief investment officer Hugh Dive.
He noted the market still remained firmly higher overall for the year and that investors were unlikely to be panicking.
“We’re only back to where we were a week ago. No fund managers are shutting doors and no one’s leaping out any windows.
“Also on some level, the moves against Brazil and Argentina, it could be showing the US is being serious about tariffs and push China into a deal.”
The major bank stocks led the decline on Tuesday, with the RBA’s decision to keep the cash rate on hold at 0.75 per cent doing little to abate their earlier slides.
Commonwealth Bank dropped 2.6 per cent to $79.34, NAB declined 1.8 per cent to $25.43, ANZ slid 1.1 per cent to $24.72 and Westpac closed 1.3 per cent lower at $24.29.
The major mining stocks were also firmly weaker. BHP Group led the losses, falling 1.4 per cent to $37.77, Rio Tinto dipped 0.5 per cent to $97.02, South32 slid 3 per cent to $2.59 and Fortescue Metals Group closed 1.5 per cent lower at $9.87.
A number of other index heavyweights were also hit.
CSL dropped 2.9 per cent to $277.90, Woolworths declined 3.4 per cent to $38.43, Wesfarmers lost 2.6 per cent to close at $41.23, Macquarie Group fell 2.5 per cent to $134.77, Telstra dipped 3.1 per cent to $3.73, Goodman Group slumped 3.1 per cent to $14.39 and Coles Group ended the session at $15.67, after losing 4.2 per cent.
Technology stocks hit hard
Technology stocks were among the hardest hit, as investors dumped their holdings in the riskier parts of the market.
WiseTech Global dipped 5.7 per cent to $26.01, Altium slid 2.9 per cent to $35.99, Appen dropped 3.6 per cent to $23.59, Afterpay Touch declined 2.3 per cent to $30.47, Nearmap fell 3.9 per cent to $2.68 and Xero lost 3.1 per cent to end the session at $79.80.
Technology One dropped 2.8 per cent to $9.00 after it was downgraded from ‘buy’ to ‘hold’ by Bell Potter.
Orocobre was hit hard, sliding 3.2 per cent to $2.42 after cutting its December quarter lithium carbonate price guidance citing softer market conditions.
Other lithium producers were also weaker, with Galaxy Resources dipping 3.2 per cent to 90¢, Mineral Resources lost 2 per cent to close at $15.01 and Pilbara Minerals fell 1.7 per cent to 28.5¢.
Investors found some solace in a limited number of stocks on Tuesday, with just 11 companies closing the day higher.
Evolution Mining shares rose 1.5 per cent to $4.07, Silver Lake Resources advanced 1.3 per cent to $1.18 and Cooper Energy climbed 0.9 per cent to 54¢.
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