The Australian stock market has fallen heavily on Monday, shedding about $23 billion, after falls last Friday in the US and Europe markets.
The S&P/ASX 200 Index dropped 60.7 points (about 1 per cent) within the first 15 minutes of trade, and had hit 74.2 points (1.2 per cent) by noon, a four-week low. The market recovered slightly, closing at 69 points down, or down 1.13 per cent for the day.
Monday’s rout came after some sobering economic news and weak manufacturing data from Europe, and news last week from the US that 10-year bond rates had dipped below the three-month rates – a measure often seen as a precursor to a recession, or a sluggish economy.
Last week’s dip marked the first time that the bond rates have intersected since 2007, just a year before the global recession.
The day marked a four-week low for the market, with every sector in decline except for property trusts and gold miners, as energy, tech and finance stocks pushing the losses. Telstra was another outlier, gaining 0.5 per cent across the day.
Both the energy and tech sectors were down more than 3 per cent each, with the heaviest falls being Altium (ALU) down 8.4 per cent, Appen Ltd (APX) easing 5.64 per cent and Afterpay Touch (APT) falling 5.33 per cent.
While the losses on the Australian market were severe, it was not as bad as markets in Asia, where Japan’s Nikkei has fallen 2.9 per cent and the Hang Seng around 2 per cent at the time of publication.
Adding to the fears of a more widespread global downturn were manufacturing data from Germany that showed a contraction for the third straight month.
And manufacturing and services activity for March in the US showed both sectors grew at a slower pace than in February, according to data from IHS Markit.
“We have re-run our preferred yield-curve recession models, which now suggest a 30-35 per cent chance of a US recession occurring over the next 10-18 months,” said Tapas Strickland, markets strategist at National Australia Bank.
Typically a 40-60 per cent probability sees a recession within the next 10-18 months, Mr Strickland added, basing the analysis on previous recessions.
“The risk of a US recession has risen and is flashing amber and this will keep markets pricing a high chance of the Fed cutting rates.”
As bonds rallied on Monday, yields on 10-year Japanese government bonds slumped to minus 8 basis points, the weakest since September 2016. Australian 10-year year yields plunged to a record low of 1.756.
Much of the concerns around global growth is stemming from Europe and China which are battling separate tariff wars with the United States.
Politics was also in focus in the United States and Britain, where political turmoil over the country’s exit from the European Union also remains a drag on risk assets.
The Australian dollar was also down for its third straight session of losses at $US0.70816.