Escalating US-China trade tensions continue to weigh on the Australian sharemarket, with the ASX 200 down by 145pts or 2.2 per cent to 6,493.7. Not only is this is the fifth consecutive fall for local equities and the biggest tumble of 2019, but the losses recorded since the start of this month have effectively reversed most of the market’s gains since June.
The souring relationship between the world’s two most powerful economies has pushed markets away from the record highs hit in July. This stems from President Trump’s announcement last week of applying a new 10 per cent tariff on an additional $300 billion of Chinese imports starting September 1. Over the past 24 hours, the Chinese government not only asked state-owned businesses to suspend imports of US agricultural goods but also allowed its currency to depreciate to an 11-year low to help cushion the blow. This led US Treasury to take the symbolic move of officially labelling China a currency manipulator.
The hostilities are impacting the local market on Tuesday with investors retreating to defensive assets. 95 per cent of stocks are down, iron ore fell by close to 9 per cent last night while oil dropped 1.7 per cent. The price of gold, bonds and the Japanese Yen have all strengthened. Australian 10-year bond yields have fallen below 1 per cent for the first time.
While it is a sea of red on the market today, losses near 2.5 per cent from the banks, heavy falls from CSL Limited (CSL) and weakness from technology companies are weighing heavily.
Retirement village operator, Aveo Group (AOG) is down 3 per cent at lunch. Its shares rose by as much as 6.6 per cent on the open after confirming it is still in discussions to be taken over by Canadian group Brookfield.
Lynas Corp (LYC) is up 5.9 per cent. Late last week the Malaysian prime minister indicated the rare earth minerals miner may not need to export residue from its processing plant in order to secure a renewal of its operating license.
All eyes will be on the Reserve Bank this afternoon which is widely expected to keep rates on hold after cutting in both June and July. The market is now pricing in a 17.4 per cent chance of a rate cut today (market pricing was around 12 per cent on Monday).
2.1bn shares have changed hands at lunch worth $4.1bn. 178 stocks are up, 993 down and 282 are unchanged.
Published by CommSec