Australian share market 4.4 per cent weaker in just a fortnight as US-China trade war worsens

The chances of Australia falling into a recession for the first time in almost three decades appear to have increased.

The Australian share market has fallen by 4.4 per cent in just two weeks as an escalation of the U.S.-China trade war spooked investors and stirred fears of an economic slowdown, both globally and locally.

Only a fortnight ago, the benchmark S&P/ASX200 index reached a new peak for the first time since November 2007.

The Australian share market has fallen by 4.4 per cent in just two weeks as an escalation of the U.S.-China trade war spooked investors and stirred fears of a recession

The Australian share market has fallen by 4.4 per cent in just two weeks as an escalation of the U.S.-China trade war spooked investors and stirred fears of a recession

What a downturn means for YOU

UNEMPLOYMENT: A recession or a severe economic slowdown would most likely push up the jobless rate from the present level of 5.2 per cent. Unemployment approached 10 per cent during the last recession in 1991 and continued climbing to 11.2 per cent by late 1992

AUSTRALIAN DOLLAR: The currency sank to 48 US cents at the end of 2008 during the global financial crisis. The Australian dollar’s fortunes are tied to commodity prices and global economic growth. A weaker exchange rate makes overseas holidays and imported goods more expensive

RETIREMENT SAVINGS: Record-low interest rates particularly hurt retirees, who often live off their superannuation and some interest on their bank savings. Baby boomers stand to lose their saving if they make short-term bets on the share market during troubled times.  This would see them rely even more on the aged pension, putting further pressure on the federal government budget

A week later it lost $83billion in just two days, after US President Donald Trump imposed 10 per cent tariffs on the remaining $US300billion worth of goods from China, Australia’s biggest trading partner.

The Australian economy is already growing at the slowest pace since the global financial crisis a decade ago, which increases the chance of unemployment rising.

During the last recession in early 1991, Australia’s jobless rate hit 9.9 per cent.

The jobless rate now sits at 5.2 per cent.

Should the history of three decades ago unexpectedly repeat itself – against the forecasts of the Reserve Bank of Australia – more than 1.3million Australians would be out of work.

Interest rates are already at a record low of one cent, which has weakened the Australian dollar.

The currency is now worth less than 68 US cents, a level well below its long-term average, which makes overseas holidays even more expensive for Australians. 

Last week, the Australian dollar plunged below 67 US cents for the first time in a decade as 10-year government bond yields fell below one per cent to record lows – a signal investors are worried about economic growth.

While many retirees own their own home, economic times like these are still tough for them. 

Baby boomers are receiving little interest on their bank savings accounts and share market returns are choppy, which means they may become more reliant on the aged pension as they run low on superannuation savings.

CommSec market analyst Tom Piotrowski said the recent turmoil on global financial markets had encouraged investors to turn away from shares.

‘There have been any number of factors that have just seen investors move towards safe havens at the expense of stocks,’ he told Daily Mail Australia.

‘When I say save havens, I’m talking about government bonds, the US dollar, the Japanese yen, and particularly gold. Gold stocks did quite well.’

This saw the Australian dollar plunge below 67 US cents for the first time in a decade which would make overseas holidays more expensive

This saw the Australian dollar plunge below 67 US cents for the first time in a decade which would make overseas holidays more expensive

The share market has recovered from the lows of last week, however it was on Wednesday afternoon still $8.7billion, or 4.4 per cent weaker, compared to where it was a fortnight ago, as anti-government protests in Hong Kong stirred fears of China’s economic stability being disrupted.

AMP Capital chief economist Shane Oliver said there was now a one in five chance of Australia slipping into a recession for the first time since 1991.

‘There’s no doubt the risk has gone up,’ he told Daily Mail Australia.

Dr Oliver said investors were particularly concerned about the trade war between the United States and China, by far Australia’s biggest two-way trading partner. 

‘That in some way will impact Australia as well,’ he said.

AMP Capital is now predicting the Reserve Bank of Australia will be cutting interest rates in September and November, taking the cash rate to a new record-low of 0.5 per cent, or half a percent above zero.

Wall Street in the United States rallied on Tuesday night, Australian time, after President Trump deferred $US160 of tariffs on Chinese consumer and electronic goods until mid-December.

US President Donald Trump's imposition of new tariffs on China (Shenzhen laptop factory pictured) has spooked investors

US President Donald Trump’s imposition of new tariffs on China (Shenzhen laptop factory pictured) has spooked investors 

The $US300billion worth of tariffs were meant to come into effect in September but the majority of those were delayed.

The short-term rally on American equities markets saw the Dow Jones index rise by 1.5 per cent.

While the Australian market was temporarily recovering on Wednesday morning, CMC Markets chief market strategist Michael McCarthy said the trade wars had continued to worry investors around the world.

‘It’s the trade concerns that are really driving markets at the moment,’ he said. 

Some investors were worried about the possibility of the Hong Kong protests disrupting China’s economic stability.

‘That shutting down of the airport was the first public evidence of economic impact,’ Mr McCarthy said. 

CMC Markets chief market strategist Michael McCarthy said the unrest in Hong Kong worried some investors about the prospect of China's economic stability being affected (pictured are protesters at the airport as 5,000 demonstrators stopped flights)

CMC Markets chief market strategist Michael McCarthy said the unrest in Hong Kong worried some investors about the prospect of China’s economic stability being affected (pictured are protesters at the airport as 5,000 demonstrators stopped flights) 

‘At this stage, the major concern would be this sort of movement spreads to other parts of China, presenting a real headache for the style of government there, that is the command economy.’

The Australian share market bled $6.4billion on Tuesday as 5,000 anti-government demonstrators shut down Hong Kong airport.

The benchmark S&P/ASX200 index of Australia’s biggest companies lost 0.3 per cent, or 21.8 points, to finish at 6,568.5 points. 

The index of Australia’s top 200 listed companies was flat on Wednesday afternoon.

Investors had earlier panicked as Hong Kong Chief Executive Carrie Lam warned the city was in danger of going ‘down a path of no return’.

Demonstrations have continued now for four months, initially sparked by plans for Hong Kong residents to be trialed for crimes in mainland China.   

Ms Lam on Tuesday warned Hong Kong was on the verge of becoming a lawless society, as police from mainland China 

‘Violence, no matter if it’s using violence or condoning violence, will push Hong Kong down a path of no return, will plunge Hong Kong society into a very worrying and dangerous situation,’ she told reporters on Tuesday.

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