Plunging commodity prices have dragged Australian shares lower on Tuesday morning, despite a stunning 11th-hour rebound on Wall Street as Twitter agreed to be taken over by billionaire Elon Musk for $61.4 billion.
The ASX 200 index had dropped 2.4 per cent to 7,206 points, by 10:45am AEST.
The broader All Ords index fell by a similar margin to 7,581 points. In dollar terms, around $60 billion was wiped off the value of the local share market.
Energy and materials stocks suffered heavy losses, including Fortescue Metal (-7.7pc), BlueScope Steel (-8.7pc), BHP (-6pc), Woodside Petroleum (-6.1pc), Santos (-4.8pc) and Rio Tinto (- 4.9pc).
The Australian dollar fell to a two-month low of 71.86 US cents.
It has been a volatile week for the local currency, which traded as high as 74.58 US cents last Thursday, before sinking as low as 71.35 US cents yesterday. Essentially, it experienced a peak-to-through loss of 4.3 per cent.
“Markets fear additional lockdowns in China will restrict activity and impact economic growth, not just in China but also throughout the rest of the world,” ANZ economists Brian Martin and Daniel Hynes wrote in a note.
The Australian dollar is particularly sensitive to China’s lockdowns and slowing economic growth.
That is particularly given that China is the biggest buyer of Australia’s iron ore, which tumbled 9.8 per cent, to $US135.75 a tonne.
On Wall Street overnight, the Nasdaq ended sharply higher as growth stocks staged a late-day rally.
It was after Twitter agreed to be taken over by the world’s richest man Elon Musk, which drove the social media company’s share price up to 5.7 per cent.
“I think it’s just a confidence thing that, hey, there are still people [who] are willing to pay ridiculous valuations for some companies out there,” said Dennis Dick, a trader at Bright Trading.
“You can tell growth wanted to rally all day but the market was holding it down.
“The Twitter news came and that was just a green light to start buying some of the growth names. They have been oversold for a while.”
The Nasdaq Composite closed 1.3 per cent higher, at 13,006 points.
The S&P 500 gained 0.6 per cent, to 4,297, while the The Dow Jones index rose 0.7 per cent, to 34,063.
It was a big improvement over last Friday’s performance (when the Dow, S&P and Nasdaq suffered heavy losses, down 2.6 to 2.8 per cent, each). It was the Dow’s biggest single-day loss since October 2020.
Bleak results from pandemic darling Netflix, along with surging yields in the US bond market pummeled high-growth stocks last week.
This brings the tech-heavy Nasdaq’s year-to-date losses to around 18 per cent.
The CBOE Volatility index (VIX) — known as Wall Street’s fear gauge — jumped as high as 31.6 points, its highest level since mid-March.
US rate hikes weigh on markets
Earlier, uncertainty reverberated across world markets, with China’s stock market recorded its worst trading day since a pandemic-led sell-off in February 2020.
On Monday, while the Australian market was closed due to ANZAC Day, the Shenzhen Component tumbled 6.1 per cent, while the Shanghai Composite fell 5.1 per cent.
European stocks also fell to their lowest point in more than a month, with the STOXX 600 index dropping 1.8 per cent, on fears of the impact of strict restrictions in China.
Traders are pricing in big moves by the US Federal Reserve this year to control inflation after a series of hawkish remarks from policymakers.
Fed chair Jerome Powell last week gave a “go” sign to a half-point rate hike in May and signaled he would be open to “front-end loading” the US central bank’s retreat from super-easy monetary policy.
Money markets are pricing in a 1 percentage point increase in US interest rates at the Fed’s next two meetings and at least 2.5 percentage points for the year, which would be one of the biggest annual increases ever.
Oil sinks on China lockdowns
Commodity prices suffered big losses, with spot gold dropping 1.7 per cent, to a four-week low of $US1,897 an ounce on the back of a stronger US dollar.
Mass testing for COVID-19 has commenced in Beijing’s largest district, sparking fears that China’s capital city could be placed into lockdown, delivering a further dent to global economic growth.
On oil markets, Brent crude futures plunged 3.7 per cent, to $US102.74 a barrel, and West Texas Intermediate crude slumped 3.5 per cent to $US98.54.
“The prospect of slower economic growth this year amid US interest-rate hikes… has already led to a downward revision of oil-demand forecasts,” analysts at the Eurasia Group consultancy said.
They also noted: “The longer the Ukraine war and the China lockdowns persist, the higher the risk that demand growth will be even weaker.”
Since soaring to their highest since 2008 in early March, oil prices have collapsed by about 25 per cent.