ASX started sliding during the second half last week amid fears of a recession in the global economy. The S&P/ASX 200 Index was down 88 points by the end of the week wiping out all the post-election gains in the share market and after achieving a 12-year high.
The relentless buying of sovereign bonds overnight triggered the recession fears and what drove it further was the escalating US-China trade war into a more extensive, drawn-out attritional campaign. The fall in bond yields has accelerated, forcing global growth bastions of optimism such as stocks and oil to rethink their strategies.
The anticipation of expected rate cuts by the US Federal Reserve is resulting in the US stocks and bonds continuing to send mixed messages about the US economy. In parallel, the global risk-off tone hit copper prices on Wednesday, with the economic bellwether sliding more than 1%. Industrial metals sold off across the board, with reports that China may cut exports of rare earth metals resulting in the investors getting defensive.
On the sidelines, the Australian dollar rose on Thursday despite a turbulent day of economic data, events and announcements. Australia's ten-year bond yield fell to a record low of 1.48%, below the RBA's cash rate although the currency reaction was only muted. The dollar firmed slightly after the Fair Work Commission increased the new minimum hourly rate by 3% as of July 1 but ended up losing it sheen shortly after as private capital expenditure and dwelling approvals both came in below expectations. And, following their firm post-election rally over the past two weeks, experts now believe that the major banks are close to being fully valued.
So, is it time to press the panic button? Well, not really, as this uncertainty has been around for quite some time now but it is wise to be prepared for any surprises and take prompt action to save your investments from sudden mayhem.
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