We'll be back in the morning from 7:30am AEST and will be here to see if trade is better or worse on the ASX on Thursday.
We'll be back in the morning from 7:30am AEST and will be here to see if trade is better or worse on the ASX on Thursday.
The September stock market hoodoo hasn’t taken long to assert itself this year.
If you’re wondering why the violent reaction on the stock market today, it’s all down to the prospect of interest rate cuts.
Those better-than-expected GDP numbers today – the economy grew by 0,6 per cent in the June quarter – are welcome news for all of us and no doubt would have put a collective smile on the faces of those in Treasury, the Reserve Bank and government.
But they decrease the urgency for the RBA to cut rates.
Bond traders reacted by pushing up the yield, or the interest rate, on Australian government bonds that mature in 10 years’ time. These are considered the benchmark for market interest rates.
Bonds don’t get much attention in the media. But they are the financial bedrock that determines the price of everything from commodities to currencies and everything else in between, including stocks.
Why don’t they attract much notice?
Unlike companies like BHP, they don’t dig stuff out of the ground. They don’t have big personalities like Andrew Forrest. And you won’t see their products in the supermarket.
But they are all-powerful. If bond yields rise, as they have today, they raise the cost of capital and suck money out of other corners of the financial world, like stocks, forcing prices lower.
Could this get worse? Absolutely. Because this is not just an Australian story and involves much more serious issues than a recovering Australian economy, which normally would be good news.
Global stocks are over-valued and it won’t take much for jittery investors to take flight.
Not only that, bond traders are worried that governments across the developed world are spending too much and running up ever greater deficits. So, they’re less inclined to hold onto US, UK and EU debt because they see greater risk in getting their money back when those bonds mature.
They’re essentially demanding higher interest rates as compensation to take on that risk. And that is causing a re-pricing of just about everything.
We are starting to get some early indicators from other global markets, with trade in parts of Europe opening up as their clocks tick over to 9am.
European markets are actually all opening in positive territory, after closing down in the last session, as traders there mull over those bond market moves and other factors.
Over on Wall Street, futures are a mixed bag.
It looks like investors are feeling positive about the tech index, after the landmark court ruling in the US on Google, which has relieved fears that the massive company will be split up.
(You can see a post about this in this blog further down!)
Who knows what the ASX will do tomorrow. We'll be here!
Market snapshot
Prices current around 5:15pm AEST
Live updates on the major ASX indices:
The ASX 200 index has fallen every day so far this month (plus it edged lower on Friday, the last trading day of August).
I started work at the ABC in 2008 — and September that year certainly wasn't good for stocks, it was the month Lehman Brothers collapsed, sparking the worst of the global financial crisis.
September does have a bit of a reputation as a bad month for stocks, at least in the US — and America still generally sets trends for global markets more generally.
This "September effect" is so well known, it has its own entry in Investopedia, which reports it as being the worst month on average for stock returns at -1% over the past century, although it notes this trend hasn't held over the past decade.
According to CNBC, quoting analysis by Morningstar, September is the only month of the year since 1926 where stocks have averaged a loss, rather than gains.
In fact, as investors like to be ahead of the game, there is serious speculation (reported by Reuters) that some are selling in August to get ahead of an expected September sell-off.
So, is the September effect about to strike again?
Most of us think Central banks set interest rates but that's not really the case.
It's bond markets that determine rates. Central Banks are big, powerful players and they usually get their way. But not always.
And this is one of those times.
US president Donald Trump's concerted attempt to muscle US rates lower by threatening to take control of The US Fed Reserve has alarm bells ringing across the globe.
Bond traders are responding by pushing short term interest rates down. But they're in open revolt on long term rates as they fear he may cause a renewed inflation spike. So, they're pushing longer term loan rates higher.
Traders are also worried about government spending and ongoing deficits in the US, the UK and Europe.
All of that requires more debt funding, and higher interest rates.
That's according to number crunching by my colleague, David Taylor. We'll bring you more soon.
Well it wasn't as bad today as on April 9, when the broader Australian sharemarket lost 1.9% in one day.
But it got close. The ASX 200 dived 1.8% today, while the broader All Ords fared a bit better at 1.7% off.
So what's driving it? There's a lot of factors that happened today that could have prompted this stock sell-off.
We've had movements on bond markets, Wall Street lost a lot overnight, and then we had local GDP figures out today, which pushed analysts to review how soon the RBA will cut rates again. (They think less quickly, in summary.)
Here's some topline thoughts from Tony Sycamore.
He notes the last day of trade that was worse than today was April 9, when Trump's tariffs came into effect and there was a "Liberation day sell off".
Today is now the biggest (drop) since then.
The backdrop certainly isn’t as dire as back then – however valuations are now stretched and positioning is the wrong way around (traders caught long).
Then on top of that and the bond yield (factor mentioned earlier in blogs) there is the weak seasonality which is also making folks a little nervous.
You could roll a lot of things down that hill.
CBA is also noting the effect of today's GDP data on bond markets, although its fresh notes points towards a potential overstatement in the data.
Thirty-year Australian government bond yields hit their highest since late May at 5.19%, though there is very little of this debt on issue and trading is illiquid. Australia's government debt to GDP ratio is among the lowest in the developed world at 35% and its bonds carry the top triple A credit rating, offering support against global fiscal worries.
Its note argues the ASX is so off today, more likely because it is following the drops on Wall Street too.