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US fears recession: Is Australia facing a market crash?

Posted: 14 June 2022 11:00 am
News
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Australia's shares are poised to fall as investors fear that the US market could be heading for a recession.

Over the long weekend, during which the Australian market was closed, markets overseas plunged as US inflation hit a 4-decade high of 8.6%.

Unsurprisingly, markets saw this as a time to sell.

The benchmark S&P500 index fell 3.9% to 3,750 points while the tech-heavy NASDAQ saw an even sharper sell-off, down 4.68% to 10,809.

Following the US' lead, Australia's market fell 4.3% during early morning trading.

Tiger Brokers chief strategy officer Michael McCarthy warns investors that the US falls will impact Australia.

"The more than 20% drop from recent highs puts the world's most influential stock market indicator into an official bear market," he said.

"The implications for Asia Pacific trading are profound."

Aussie market falls to 18-month lows

The Australian market is following much of the world, falling to 18-month lows during early morning trading.

Avoiding much of the carnage on Monday due to the market closures for the Queen's Birthday holiday, the ASX200 dived 5% or 349.4 points to 6,582.6 points with the sell-off hitting all 11 sectors.

Much like the US, technology shares were down the most, down 8.2% on the opening bell.

Traders in the buy now pay later sector saw falls of nearly 20% with Zip Co down 19.8% while Block fell 18.5%.

Even surging commodity prices couldn't save the mining sector, with BHP and Rio Tinto down 6.52% and 6.54% respectively.

During the morning's trading, only 2 shares in the ASX200 were up: Gold Corporation and Uniti Group.

Recession fears

The current market sell-off is a reaction to surprising US inflation figures.

Attempts from central banks including the US Federal Reserve to slow consumer spending by lifting cash rates are proving futile so far as inflation keeps rising.

Instead, Friday's figures out of the US show inflation is up to 8.6% in May, as consumers in the US face similar problems to Australia, with energy and food prices surging.

This is leading to the Federal Reserve contemplating a lift of 75 basis points during its next meeting.

Traders are now anticipating that the Fed could go as high as 4% for its cash rates.

As such, world markets are now fearing these larger rate hikes will drive the US economy back into a recession by early next year.

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