The ASX 200 suffered a sharp decline today, falling 153.40 points or 1.85% to 8,156.00 as of 1:56 pm AEDT. This marks the seventh red day out of the past eight trading sessions for the Australian share market.
Market Overview
Today’s sell-off leaves the ASX 200 4.21% below its 52-week high. Over the past five days, the index has dropped 2.09%. Among the hardest-hit stocks in the ASX 200 were Deep Yellow Limited and Megaport Limited, down 12.92% and 10.08%, respectively.
Figure 1: Performance of ASX200 as of 1:56 pm AEDT., December 19th, 2024
Broader Market Trends
The decline in the ASX 200 coincides with a broader global market sell-off, sparked by fresh economic signals from the United States. Wall Street’s overnight performance saw major indices slump, with the S&P 500 falling 3.0% and the Nasdaq plunging 3.6%.
The Australian dollar (AUD) has also felt the impact, dropping to 62 US cents—its lowest since October 2022. A stronger US dollar, coupled with the Federal Reserve’s rate decisions, has added pressure to the local currency.
Federal Reserve Rate Cuts and Projections
The US Federal Reserve cut interest rates by 0.25%, lowering the federal funds rate to 4.25–4.50%. Despite the cut, markets reacted negatively due to the Fed’s forecast for slower rate reductions in 2025.
Chairman Jerome Powell commented, “With today’s action, we have lowered our policy rate by a full percentage point from its peak and our policy stance is now significantly less restrictive. We can therefore be more cautious as we consider further adjustments to our policy rate.”
Powell also addressed inflation concerns, stating, “While inflation had eased significantly, the level remained somewhat elevated compared to the Fed’s long-term target of 2 per cent.”
The Fed’s updated projections suggest only two rate cuts in 2025, a sharp reduction from the four cuts anticipated earlier. Analysts believe this shift reflects the Fed’s concern about persistent inflation and potential tariff-related risks under President-elect Donald Trump’s administration.
Impact on the Australian Market
The ASX 200 faced heavy losses as these developments sent shockwaves through global markets. High-profile Australian stocks contributed to the slide:
- Commonwealth Bank of Australia shares fell 2.2% to $156.20.
- BHP Group Ltd dropped 1.3% to $39.76.
- CSL Ltd saw a 0.9% decline, with shares priced at $279.66.
Investors are now grappling with uncertainty as the Australian market reacts to US interest rate forecasts and the AUD’s weakness.
Expert Opinions on Market Conditions
Greg Boland, Chief Strategy Officer at Tiger Brokers Australia, noted, “Fed officials now see greater uncertainty about next year than in September due to the US election and the Fed officials want greater progress on bringing inflation down. Officials are in a wait-and-see – take-our-time mode given greater inflation threats from tariffs and tax changes are uncertain.”
Whitney Watson from Goldman Sachs Asset Management added, “While the Fed opted to round out the year with a third consecutive cut, its New Year’s resolution appears to be for a more gradual pace of easing.”
Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, said, “The Fed tried to give the market what it wanted, but the gift was not well received. The market is forward-looking and ignored the 25-basis-point cut today and instead focused on the lack of cuts for next year.”
Broader Economic Implications
The Fed’s projections have raised concerns about higher interest rates persisting into 2025, with potential implications for global trade and economic growth. The Congressional Budget Office warns that new tariffs could hurt economic growth and push inflation higher.
The impact of these factors has already begun to ripple through financial markets. Wall Street’s sell-off highlights the challenges of balancing inflation control with economic stability.
Australian Dollar Outlook
The Australian dollar (AUD) remains under pressure, trading at 62 US cents. Analysts predict further volatility as major central banks, including the Bank of England and Bank of Japan, announce their policy decisions later this week.
Diane Swonk, Chief Economist at KPMG, highlighted the challenges ahead for central banks. “Members of the Fed’s rate-setting Federal Open Market Committee (FOMC) now ‘need to see additional improvements in inflation to continue to cut rates—full stop’,” she said.
Hope for a Santa Rally?
Despite today’s slump, some market watchers remain optimistic about a year-end recovery. Historically, the ASX 200 and other major indices often experience a “Santa Claus rally” during December.
However, CFRA Research’s Sam Stovall warned, “Seeing the kind of decline we are experiencing right now indicates that the Fed took the market quite by surprise.”
Closing Thoughts
The ASX 200 faces significant headwinds from global market volatility and domestic challenges. As the year-end approaches, investors will closely watch US economic policies, central bank actions, and the performance of the Australian dollar.
Navigating these uncertainties will require careful portfolio management and a focus on resilient sectors in the ASX 200. Whether a Santa rally materialises or not, today’s events underscore the interconnected nature of global markets and their impact on ASX news.