The Australian share market has slumped two per cent in opening trade after Wall Street hit a new low for the year and the British pound sunk to 1985 levels.
The Australian Securities Exchange’s benchmark S&P/ASX200 was 1.9 per cent weaker at 6,447.3 points within the first hour of trade on Monday, with analysts increasingly worried about a global recession.
The UK pound sterling on Friday night fell to a 37-year low as the Conservative government’s tax cuts reminded investors the Bank of England would keep hiking interest rates to fight inflation.
Australia’s share market plunge reflected Wall Street’s slump with New York’s benchmark Dow Jones Industrial Average finishing 1.6 per cent weaker on Friday night, after hitting a new low for 2022 and finishing below the 30,000 mark for the first time since June.
This occurred after the US dollar surged to a two-decade high, leading to a sharp-sell-off in Australian energy stocks on Monday morning, which saw diversified mining giant BHP plunge 4.2 per cent to $36.55 as Rio Tinto plummeted 5.1 per cent to $88.25.
Saxo market strategist Jessica Amir said the soaring American greenback convinced investors coal prices would peak this year as the world’s major economies went into recession as a result of rising interest rates.
‘You’ve got the US dollar trading at its highest level in two decades on fears that rising interest rates will put some economies into recession,’ she told Daily Mail Australia.
The Australian share market has slumped two per cent in opening trade after Wall Street slumped to a new low for the year (pictured is the Australian Securities Exchange in Sydney)
‘Everyone pays for oil, coal, wheat – the major 23 commodities are paid in US dollars.
‘A bearish tone was set when the US dollar hit a new high so we’re seeing the equity sell-off kind of be intensified and that’s because the US dollar hit its highest level in two decades.
Saxo market strategist Jessica Amir said the soaring American greenback convinced investors coal prices would peak this year as the world’s major economies went into recession as a result of rising interest rates
‘So when investors are ultra cautious, they plough into the US dollar so that means they have to be selling something.’
Global risk appetite took another hit as the UK pound sterling fell to the lowest level since 1985 after new Conservative Prime Minister Liz Truss and her new Chancellor of the Exchequer Kwasi Kwarteng unveiled a mini budget with big tax cuts, fuelling concerns about worsening inflation as voters had more money to spend.
Ms Amir said the mini-budget just reinforced the view, among investors, that the Bank of England would continue to focus on fighting inflation, which in August was at 8.6 per cent.
‘We had a budget handed down in the UK, you’ve got historic tax cuts but you also have the Bank of England sticking to their rate hike decision,’ she said.
This also reminded investors the US Federal Reserve will raise interest rates at its next meeting scheduled for November, just like the Bank of England, with inflation in the American economy last month running at 8.3 per cent.
Headline inflation, also known as the consumer price index, in the US and UK this year reached levels unseen since the early 1980s.
‘Two pretty big economies are prepared to let their economies go into an official recession just to keep inflation under wraps,’ Ms Amir said.
‘They are selling off risky assets on fears that rising interest rates will continue.’
Global risk appetite took another hit as the UK pound sterling fell to the lowest level since 1985 after new Conservative Prime Minister Liz Truss (left) and her new Chancellor of the Exchequer Kwasi Kwarteng (right) unveiled a mini budget with big tax cuts, fuelling concerns about worsening inflation