Australian shares have slipped in early trade as investors cautiously hit the “pause button” after significant gains in the past few weeks.
- The ASX 200 has fallen by 0.7pc in the past two days
- It has risen by 1.6pc since the new financial year (July 1)
- The Australian dollar has lifted by 12.5pc in the last three months
By 10:40am AEST, the benchmark ASX 200 index was down 0.4 per cent to 5,991 points.
Most of Wednesday’s best performing stocks were gold miners like Northern Star Resources (+4.7pc), Evolution Mining (+3.9pc) and Gold Road Resources (+3.6pc).
Financials was the weakest sector, weighed down by NAB (-1.5pc) and the other major banks, which shed between 0.8 and 1.5 per cent each.
Some of the weakest performers were Domain Holdings (-4pc), Afterpay (-2.6pc) and Webjet (-2.3pc).
The Australian dollar slipped (-0.5pc) to 69.36 US cents, partly due to a stronger greenback and Melbourne’s six-week lockdown to contain its spike in COVID-19 cases.
“Victoria’s economy accounts for 24 per cent of the national economy,” said Commonwealth Bank currency strategist Kim Mundy.
“And Melbourne’s population is around 20 per cent of the national population.
“Our CBA Economics team estimate that if Victoria’s Gross State Product (GSP) is 10 per cent lower than would otherwise be the case over the next six weeks, the shutdown could shave 1 per cent off national GDP growth in the third quarter.”
‘Dramatic pullback would be good’
As large parts of the United States report tens of thousands of new coronavirus infections, Wall Street investors decided to cash out.
The Nasdaq briefly climbed to a new record high on Tuesday (local time), but ultimately fell by 0.9 per cent in the final hour.
The S&P 500 shed 1.1 per cent, its first fall in six days — while the Dow Jones index closed 1.5 per cent (or 397 points) lower.
“It’s healthy to have some pullbacks,” said Alan Lancz, an investment adviser based in Toledo, Ohio.
“Even a more dramatic pullback would be good, just because I think there’s a lot of uncertainty and it’s kind of advanced on a wall of worry here.
It was a similar story in European markets, with Germany’s DAX and Britain’s FTSE losing 0.9 per cent and 1.5 per cent respectively.
Spot gold lifted (+0.7pc) to $US1,795.13 an ounce, around an eight-year high, on strong demand for the safe haven metal.
Oil prices fell amid concerns that a surge in new COVID-19 cases, particularly in the US, could hamper any recovery in fuel demand.
Brent crude futures dropped (-0.4pc) to $US42.94 per barrel.
Stimulus expected to keep boosting stocks
The European Commission forecast the eurozone economy would slide into a deeper recession in 2020, than it had expected, and that it would take longer to rebound.
It said the 19 nations that use the single currency would shrink by a record 8.7 per cent this year — worse than its previous forecast of a 7.7 per cent contraction.
The commission expects the eurozone to grow by 6.1 per cent next year — also a downgrade from what it previously forecast in May (+6.3pc).
“Just when many parts of the world looked to have got to grips with the coronavirus pandemic, many jurisdictions reimposed lockdowns to contain a surge in new cases,” said Luca Paolini, chief strategist at Pictet Asset Management.
Corporate earnings are expected to fall by about 20 per cent this year, following the deepest recession in more than a century. Pictet expects a 30-40 per cent slump.
He predicts the US Federal Reserve will inject a further $US1.3 trillion ($1.87t) worth of stimulus this year, and the European Central Bank will add another $1.79 trillion.