Fed speculation sparks sharemarket rout
As speculation intensified about the US Federal Reserve beginning to wind back its stimulus efforts - worth $US85 billion a month - in September, the S&P/ASX 200 Index plunged 1.9 per cent to 5011.3 points, posting its second day of losses and biggest one-day drop since July 3.
Japan's Nikkei average was also rocked, tumbling 4 per cent, its biggest intra-day hit since mid-June.
The losses came after the ASX slipped 0.1 per cent on Tuesday following the Reserve Bank signalling it could end its easing cycle as it cut the official cash interest rate for the second time in four months. That, combined with a federal election campaign, which normally steers the market sideways, compounded the plunge into negative territory, according to AMP chief economist Shane Oliver.
Dr Oliver said the uncertainty usually scared off foreign investors, who control about 30 per cent of the Australian sharemarket.
"That has been reinforced by all this tapering talk. If you go back to May and June when the tapering talk in the US first erupted it tended to be positive for the US dollar and negative for currencies like the Australian dollar, and that has weighed on our sharemarket," Dr Oliver said.
"There's this thought that if America's economy is looking stronger and they're starting to reduce the monetary stimulus, then it makes sense to start putting money back in the US and, by implication, that means less money for Australia."
But RBS Morgans private client adviser Bill Bishop said the Fed comments should not have taken the market by surprise. "They're gently breaking us in, and it had to happen, quite frankly," he said. "They're going to have to do it sooner or later, and the market's hooked on the drug [of stimulus], and they like it."
Resources led the ASX nosedive, sliding 2.6 per cent as the High Court found the profits tax on iron ore and coalmines was constitutional.
Fortescue Metals, which led the challenge, slipped 18¢, or 4.6 per cent, to $3.75. BHP Billiton and Rio Tinto were also down, falling 2 per cent to $34.90 and 2.1 per cent to $58.60 respectively.
The banks weighed on the market, with CBA shedding 2 per cent to $72.08 and Westpac finishing 2.2 per cent lower at $30.54. NAB and ANZ fell 1.7 per cent to $30.53 and 2.2 per cent to $29.10 respectively.
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A three‑pronged wave of uncertainty triggered the rout: growing speculation the US Federal Reserve will start to wind back its $US85 billion a month stimulus in September, signals from the Reserve Bank of Australia that it could end its easing cycle after a second rate cut in four months, and a federal election campaign that typically pushes markets sideways. The S&P/ASX 200 fell 1.9% to 5011.3 points on the day.
Tapering talk made the US dollar stronger and weighed on currencies like the Australian dollar, which in turn put pressure on the Australian sharemarket. AMP chief economist Shane Oliver noted that when US stimulus pullback is expected, money can flow back to the US, meaning less capital for Australia and added downside risk for the ASX.
The RBA had cut the official cash rate for the second time in four months but signalled it could end its easing cycle. That signal, combined with global tapering speculation and local election uncertainty, compounded investor nervousness and contributed to the market slide.
The resources sector led the ASX nosedive, sliding about 2.6%. Losses were driven by a High Court ruling that the profits tax on iron ore and coalmines is constitutional, which hit miners’ shares, notably Fortescue Metals and the big integrated miners.
Fortescue Metals, which led the legal challenge, fell 18 cents (4.6%) to $3.75. BHP Billiton dropped about 2% to $34.90 and Rio Tinto declined around 2.1% to $58.60, reflecting resources sector weakness after the High Court decision.
Major banks weighed on the market: Commonwealth Bank (CBA) shed about 2% to $72.08, Westpac fell 2.2% to $30.54, NAB dropped 1.7% to $30.53 and ANZ slipped 2.2% to $29.10, contributing to the overall ASX decline.
RBS Morgans private client adviser Bill Bishop said the Fed comments shouldn't have surprised investors, arguing the US will need to taper stimulus sooner or later and markets had become 'hooked' on stimulus. AMP’s Shane Oliver pointed to foreign investor retreat and currency impacts as key channels amplifying the fall.
Internationally, Japan’s Nikkei average tumbled about 4%—its biggest intraday fall since mid‑June—reflecting the global reach of Fed tapering speculation and broader risk‑off sentiment that day.
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