Australian Share Market Opens in Decline Amid US Economic Concerns

Australia’s share market is experiencing a dip today following disappointing job numbers from the United States, raising concerns that the Federal Reserve might not have acted swiftly enough to prevent a slowdown in the world’s largest economy.

ASX futures dropped 102 points, or 1.3 percent, to 7883 after a significant sell-off in the US, where the S&P 500 fell 1.7 percent and the Nasdaq 100 lost 2.9 percent. The market was also affected by a weak outlook from semiconductor producer Broadcom.

US shares were sold off after non-farm payroll data came in 23,000 below expectations for August, suggesting further signs of slowing economic activity. Additionally, the previous two jobs reports were revised downward, with the pace of hiring over the last three months now the slowest since the COVID-19 pandemic.

Arian Neiron, managing director and head of Asia-Pacific at VanEck, noted that the revision of jobs data at the end of an economic cycle is typical. He suggested that the US economy appears to be shifting towards a period of weakening.

Neiron also warned investors to prepare for more volatility, particularly with the possibility of the Bank of Japan raising interest rates again. He explained that such moves tend to cause global stock declines as investors unwind leveraged trades like the yen carry trade. “When volatility spikes aggressively, it’s often due to the unwinding of leverage in the market,” Neiron said.

Earlier in the week, Wall Street had already been unsettled by weak economic data, including a drop in US job openings to a 3½-year low in July and a downbeat assessment in the Federal Reserve's Beige Book, which summarizes economic conditions.

This contributed to the worst week for the US stock market since March 2023, with the S&P 500 down 4.2 percent and the Nasdaq down 5.8 percent. By comparison, Australia’s S&P/ASX 200 index declined by 1 percent.

Diana Mousina, deputy chief economist at AMP, indicated in a report to clients that share prices remain vulnerable to further declines in the months ahead due to high valuations and seasonal trends. She also pointed to potential downside risks for tech companies like Nvidia and the possibility of recession fears rising as economic activity slows.

Last week’s jobs report reinforced expectations that the Federal Reserve may lower borrowing costs in its upcoming meeting. However, there is speculation about whether a standard 25 basis point cut will be sufficient, or if a larger half-percentage-point reduction might be necessary.

Federal Reserve Governor Christopher Waller mentioned on Friday that he is “open-minded” about the potential for a larger rate cut if the data supports it. He emphasized that the current economic data calls for action rather than patience.

Before the Federal Reserve's next meeting on September 17-18, key US inflation data will be released, with the Consumer Price Index (CPI) expected on Wednesday. Markets are anticipating another 0.2 percent increase in core CPI, keeping the annual rate at 3.2 percent. Headline inflation is expected to decrease to 2.6 percent from 2.9 percent.

According to National Australia Bank, a series of modest inflation prints may not entirely resolve inflation concerns but would likely shift the focus back to the labor market. CPI data is seen as the last major piece of information before the Fed's meeting.

In Europe, the European Central Bank (ECB) is expected to lower interest rates for the second time this cycle on Thursday, bringing the deposit rate down to 3.5 percent. Meanwhile, Australia’s Reserve Bank has taken a different approach, with Governor Michele Bullock downplaying expectations of a rate cut this year.

Despite this, markets are still anticipating a potential rate cut in December, bringing the rate down from 4.35 percent to 4.1 percent. Further insights from the Reserve Bank of Australia will come on Wednesday, when Assistant Governor Sarah Hunter speaks at the Barrenjoey Economic Forum in Sydney.

Sources: Bloomberg

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