Black Monday amid US recession fears

Australian shares have been smashed for the second consecutive day as growing recession fears in the US and Japan flummox markets around the world.

Losses on the Australian market now total more than $180 billion since Thursday as investor confidence is also being sapped by broadening hostilities in the Middle East and related hike in oil prices.

After plunging 6 per cent on Friday, Tokyo’s Nikkei index plunged another 12 per cent in trading on Monday as worries about the Japanese economy were aggravated by fears of a market shake-out and negative economic news in America.

Markets in Asia-Pacific time zones were set for another tough after US’s Nasdaq closed more than 2.4 per cent down early Saturday (Sydney time), the day after the technology stock-focused index plunged 2.35 per cent.

The tech-heavy Nasdaq was officially heading into a correction territory late last week, having lost more than 10 per cent from its records set in July as investors so-called Magnificent Seven talk stocks.

Anxiety in the US has increased since the Federal Reserve last Wednesday decided to not cut its benchmark interest, prompting talk the central bank has missed a chance to stabilise a stumbling economy.

The US’s broader S&P500 index slid a total of 3.2 per cent in the last two trading days of last week.

And with the Reserve Bank of Australia meeting on Tuesday when it is widely believed to be keep rates unchanged, the Australian market is living up to the old adage: “When Wall Street sneezes, Aussie shares catch a cold.”

After losing more than 2.1 per cent on Friday in response to the US falls, Australia’s S&P/ASX200 index plunged about 3 per cent in early trade before a late slip took 3.8 per cent down for the day. Fintech company Zip (down 10.9 per cent) and Clarity Pharmaceuticals (down 12.9 per cent) were among the worst affected by the rout.

It comes just days after the market set a new record high last week.

AMP chief economist Shane Oliver said “we’re in a fairly messy position here”.

“It looks to me like the inflation scare we saw earlier in this year in the US and more recently in Australia, has unnecessarily delayed monetary easing,” he said.

“And now, of course, the financial markets are starting to worry about that higher risk of recession.”

The one positive out of the market shakedown is that it will give the Reserve Bank another reason to hold off until spring to see whether inflationary pressure is reducing in Australia.

Betashares chief economist David Bassanese said new concerns about the US economy, triggered by weaker-than-expected jobs and manufacturing data, would likely be the “final nail in the coffin” for the case to lift interest rates.

Market punters are expected official interest rates to be kept on hold, and economic tea leaf readers are even talking about a rates as early as November in a bid to stop Australia heading into a recession.