Yen carry trade and US recession fears drive worst ASX 200 sell-off since 2020 | The Business

Summary

The Australian Securities Exchange (ASX) suffered its worst single-day loss since the early days of the COVID-19 pandemic, with the ASX 200 falling 3.7% and the All Ordinaries down 3.8%. The sell-off was fueled by the Bank of Japan's decision to raise cash rates, impacting carry trade strategies, and concerns over a potential US recession. Sectors hit hardest included finance, energy, and real estate, with cryptocurrencies like Bitcoin also plummeting by 18%. The Australian dollar weakened, and investors are closely monitoring the ongoing market volatility and its global impact.

Takeaways

• 📉 A hundred billion dollars was wiped from the ASX in a session, marking its single worst day since early in the COVID pandemic.
• 📊 The ASX 200 fell sharply on opening and continued to decline, ending the day 3.7% down, with the All Ordinaries down 3.8%.
• 💹 Cryptocurrencies were also hit hard, with Bitcoin dropping by 18%.
• 💱 The Australian dollar fell by 1.7%, now buying just below 64 US cents.
• 🏦 Losses were widespread across all sectors, with financial, energy, and real estate stocks being the hardest hit.
• 📉 The sell-off was primarily triggered by the Bank of Japan's decision to lift the cash rate, affecting the carry trade strategy.
• 📝 Investors' fears of a potential US recession, exacerbated by weaker-than-expected job market data, also contributed to the sell-off.
• 📉 Momentum stocks experienced the largest falls due to deleveraging, particularly those with high positive momentum.
• 🏦 Australian bank stocks, which had reached extreme valuations, are now undergoing a significant revaluation, with further declines expected.
• 📉 The sell-off is global, with some Asian markets temporarily suspending trading to stem losses, and ongoing liquidity issues making the situation volatile.

Q & A

What was the impact on the ASX in the session described in the transcript?

The ASX suffered a significant loss, with a hundred billion dollars being wiped off its value, marking its single worst day since the early stages of the COVID-19 pandemic.

How did the ASX 200 perform on the day mentioned in the transcript?

The ASX 200 fell sharply on opening and continued to decline throughout the day, finishing with a 3.7% drop.

What were the two main reasons for the sell-off according to Matthew Halp from Wilson Asset Management?

The sell-off was primarily due to the Bank of Japan's decision to lift the cash rate, impacting the carry trade, and secondly, concerns over the slowing job environment in the US, with weaker nonfarm payrolls figures raising questions about the durability of the economic expansion.

How did the carry trade strategy contribute to the market's sharp decline?

The carry trade strategy involves borrowing in a low-interest-rate currency for investment elsewhere. When this strategy unwinds, especially in a leveraged manner, it can lead to sharp and quick market declines as seen in the transcript.

Which sectors were the hardest hit by the losses on the ASX?

Financial, energy, and real estate stocks were the most affected by the sell-off.

How did cryptocurrencies fare during this market downturn?

Cryptocurrencies, including Bitcoin, did not escape the downturn, with Bitcoin experiencing a drop of 18%.

What was the performance of the Australian dollar in this market scenario?

The Australian dollar also weakened, falling by 1.7% and buying just below 64 US cents.

What is the current situation with the banking stocks on the ASX, according to the transcript?

Banking stocks are undergoing a revaluation, with some stocks like CBA falling more than 5%. The Australian banking sector had reached extreme valuations, and the current situation is seen as a healthy correction.

What does Matthew Halp suggest about the potential for further falls in Australian bank shares?

Matthew Halp suggests that if the market were to return to more normal levels, there is still a significant amount of room for Australian bank shares to fall, indicating that the selloff might not be over yet.

How did some Asian stock markets respond to the losses?

Some Asian stock markets temporarily suspended trading in an attempt to stem the losses, a measure likely due to smaller liquidity pools compared to European and US markets.

What is the market's expectation regarding the US Federal Reserve's action, and what does Shane Oliver suggest for the RBA?

The market is betting on a 50 basis point cut by the US Federal Reserve in September. Shane Oliver, Chief Economist, suggests that the RBA should consider cutting the cash rate, but Matthew Halp expects a 'hawkish hold' from the RBA, citing concerns around global markets.