The ASX declined 2.2% in trading today, led by a weak showing from Wall St. The selloff is global in nature and primarily led by weak PMI data from the US and Europe. The US ISM manufacturing PMI index came in at 47.8, well below the 50 level that demarcates expansion from contraction. This reading was the worst on record since the GFC and highlights growing cracks in one of the few drivers of global economic growth. With markets approaching all-time highs, this catalyst was adequate to cause a sell-off in stocks. Trump capitalised on the data to argue for more Fed rate cuts, arguing that their decision to keep interest rates at current levels is holding the dollar high and limiting the ability of the United States to compete in the trade war.
Markets have declined substantially today, after a trading session in New York (Credit: The West Australian)
Asian markets also declined, following North Korea’s decision to fire a ballistic missile that is believed to have come from a submarine, as part of a test. The country is in working level talks with the United States, but the decision signals a potential escalation of tensions in the region.
Another reason for Aussie markets being dragged down is poor new car sales data, indicating weakness in the Australian economy specifically. Since automotive sales are a good indication of broader economic activity, it indicates that the RBA’s interest rate cuts are not feeding through to the underling economy as quickly as some commentators hoped. While monetary policy typically has a 12-18-month time lag before it’s effects fully flow through to the rest of the economy, it is likely that the current stimulus is flowing mainly to the housing market. House prices are up substantially across Australia, but the underlying economic data, particularly in unemployment, looks fairly lacklustre, which indicates that most people would prefer to invest than spend.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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