April 26, 2018

Dow tumbles to correction territory

09 February 2018, 06:51 | Dan Bryan

The Australian share market has followed Wall Street into negative territory

The Australian share market has followed Wall Street into negative territory

While the more than 1,000 point tumble in the Dow Jones industrial average led the market lower, the USA dollar's weakening against the Japanese yen also hurt export manufacturers' shares.

However, those relatively small percentage movements overnight were closer to what markets expected, compared to the Dow's 4.6 per cent (1,175 point) drop earlier this week.

The Dow and S&P 500 edged up in choppy trading on Wednesday afternoon, though energy shares dropped as oil prices fell 2 percent after USA data fanned fears of oversupply.

By Cormac Mullen Asian stocks fell Friday following a plunge in their USA counterparts as the dread that gripped equity markets earlier in the week re-emerged, amid concern rising interest rates will drag down economic growth.

On Wednesday, U.S. Treasury prices dropped after the Treasury Department sold new 10-year notes to soft demand and the U.S. Senate reached a budget deal.

The Indian markets were not spared either, erasing gains made since the beginning of the year.

With global stock markets suddenly volatile again, investors might need a refresher on some of the terms being thrown around.

The bank said it will be some time before Australia's unemployment rate drops to what it considers full employment and also before the limp inflation rate - now at 1.9 per cent - reaches the midpoint of its preferred two to three percent target band. In fact, after the strong rally in stocks in January, some claim that the present correction was overdue to prevent stocks from running too far ahead.

The sharp moves this week have raised questions about how quickly investors would be willing to buy stocks at lower prices or stay cautious amid the threat of higher inflation.

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"We had an extreme sell-off followed by an extreme bounce", said "It was a massive reversal: almost 1,000 points on the Dow is mind-bending".

With Wall Street's quarterly earnings season more than half-way through, 78.3 per cent of the S&P 500 companies that have reported so afar have beaten profit expectations, above the 72 per cent beat-rate in the past four quarters.

Investors fear that low unemployment, increasing US growth and rising wages will spur the Federal Reserve to raise interest rates, which would boost the cost of borrowing money.

ASX 200 Index tumbled 3.2 percent to close at 5,833.30 in Sydney, its lowest level since October 13, as Asian equity markets continued a sell-off.

Several other strategists, however, have said this is an opportunity to "buy the dip".

The Dow slid past 1,000 points on concern that rising interest rates will drag economic growth. Hong Kong's Hang Seng skidded 5.1 percent and South Korea's Kospi declined 1.5 percent.

The benchmark Standard & Poor's 500 index followed suit, shedding 101 points, or 3.8%. European equities weren't spared, with the Euro Stoxx 50 volatility gauge spiking toward the highest since June 2016 - the month of the Brexit vote.

The dollar fell to 109.12 yen from 109.70 yen. The index finished at 24,342, down 4.6 percent.

Before then, the index had not seen a decline of that magnitude since August 2011.

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