Today, the Australian share market took a significant hit, driven by a global sell-off in technology stocks, mainly Nvidia. The S&P/ASX200 index dropped 161.10 points, or 1.99%, to 7,942.10. It marked one of the most substantial single-day losses for the index in recent times.
Figure 1: ASX 200 today
Critical Factors Behind the Decline
The sharp decline in the ASX was mainly due to a combination of weak economic data and increasing fears of a worldwide economic slowdown. A significant sell-off in the US magnified these concerns, with tech giant Nvidia leading the downturn.
Nvidia’s Impact:
Nvidia, a key AI and semiconductor industry player, saw its stock plummet by 9.5% in New York. This drop followed weak US manufacturing data, which came in below expectations. Investors interpreted this as a sign to reduce their exposure to high-growth tech stocks. Nvidia’s decline erased a staggering $US278.9 billion from its market value, marking the most significant loss of value for a US stock in history. This sell-off rippled through global markets, affecting Australian stocks, particularly those related to technology and resources.
Figure 2: Performance of NVIDIA Corporation stock
Australian Market Reaction
In response to the global sell-off, the ASX opened sharply lower and continued to decline throughout the day. By the close, the S&P/ASX200 index had fallen nearly 2%, reflecting the broader market’s fears about an economic slowdown.
Top Losers:
Today’s worst-performing stocks on the ASX were Deep Yellow Limited and Fortescue Ltd, falling by over 8%. These losses were part of a broader retreat in resource stocks, also hit by falling commodity prices. Iron ore, in particular, saw a significant drop of 3.5% in Singapore trading, adding pressure to Australian mining giants.
Volatility Surge:
The Australian Volatility Index (A-VIX), which measures market risk, jumped by 20.35%, indicating heightened investor uncertainty. This spike in volatility reflects the nervousness in global markets as investors grapple with the possibility of a deeper economic downturn.
Broader Economic Concerns
The decline in the ASX also comes against the backdrop of weaker-than-expected economic data from both the US and China. In the US, the manufacturing sector contracted for the fifth consecutive month, raising concerns about the global economy’s health.
Manufacturing Data:
The US manufacturing sector’s August data showed continued contraction, with key indicators such as new orders and production falling to levels not seen since 2020. It raised fears of a slowdown in global demand, particularly for commodities, which are crucial for the Australian economy.
Chinese Data:
Similarly, over the weekend, manufacturing data from China pointed to ongoing weakness, further dampening investor sentiment. As China is Australia’s largest trading partner, any economic slowdown can significantly affect Australian exports, particularly in resources.
Market Outlook
The ASX may continue to face pressure if global economic conditions do not improve. Investors are closely watching the upcoming US jobs data, which could provide further clues about the Federal Reserve’s next moves regarding interest rates.
Fed’s Next Steps:
The US Federal Reserve is set to meet later this month, with speculation mounting about possible interest rate cuts. However, much will depend on the US jobs report, which is expected to be released later this week. A weaker-than-expected report could prompt the Fed to take more aggressive action, further impacting global markets.
Conclusion
Today’s sharp decline in the ASX reflects a broader unease in global markets, driven by weak economic data and fears of a slowdown in key sectors. With the Australian market now sitting 2.54% below its 52-week high, investors will be closely monitoring global developments, particularly in the US and China, for any signs of stabilization. Until then, the ASX is likely to remain volatile, with further downside risks possible in the short term.
