Asia poised for trouble after Wall Street plunges

Stocks in Australia traded down Wednesday morning after an overnight plunge on Wall Street as investors worried about a potential economic slowdown.

The ASX 200 fell 1.56 percent in early trade, with almost all sectors trading lower.

The heavily weighted financial subindex was down 2.07 percent, following a sell-off in bank stocks stateside. Shares of Australia’s so-called Big Four banks fell: Australia and New Zealand Banking Group shed 1.78 percent, Commonwealth Bank of Australia declined 2.15 percent, Westpac traded down 2.01 percent while National Australia Bank lost 1.56 percent.

Australia is set to release its third quarter gross domestic product data at 8:30 a.m. HK/SIN.

Futures also pointed to a lower open for the Nikkei 225 in Japan. The Nikkei futures contract in Chicago was at 21,600 while its counterpart in Osaka was at 21,680. The benchmark index last closed at 22,036.05.

Symbol
Name
Price

 

Change
%Change

NIKKEI

HSI

ASX 200

SHANGHAI

KOSPI

CNBC 100

Wall Street takes a dive

Stocks sold off overnight on Wall Street as the Dow Jones Industrial Average dropped 799.36 points, or 3.1 percent, to close at 25,027.07 — its worst day since Oct. 10. The S&P 500 shed 3.2 percent to close at 2,700.06 while the Nasdaq Composite fell 3.8 percent to end the trading day back in correction territory at 7,158.43. Trading volume in U.S. stocks was also higher than usual on Wall Street.

The yield on the three-year Treasury note surpassed its five-year counterpart on Monday. When a so-called yield curve inversion happens — short-term yields trading above longer-term rates — a recession could follow, though it is often years away after the signal triggers.

Stocks began falling to their lows of the day after Jeffrey Gundlach, CEO of Doubleline Capital, told Reuters this inversion signals that the economy “is poised to weaken.”

The CBOE Volatility Index, popularly known as the VIX, leaped about 26.16 percent to 20.74. The VIX measures implied volatility on S&P 500 index options. It had earlier hit a high of 21.94 — its highest levels since Nov. 23 when it touched a high of 22.65.

Confusion over US-China trade agreement

Beyond concerns over the inversion in the yield curve, uncertainty surrounding the details of the agreement struck between U.S. President Donald Trump and Chinese President Xi Jinping in Buenos Aires weighed on investor sentiment.

The two economic powerhouses have been locked in an ongoing trade war, which has continued to rock global markets for much of 2018.

The U.S. and China agreed over the weekend to hold off on any additional tariffs on each other’s goods on Jan. 1, so that trade talks can continue. But discrepancies over when that truce would begin has led to confusion, with conflicting messages coming from within the White House as well as differing opinions from Trump, Washington and Beijing over the actual details of the agreement.

Currencies

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 96.959 after seeing an earlier high of 97.128.

The Japanese yen, widely viewed as a safe-haven currency, traded at 112.68 against the dollar after strengthening from lows above 113.5 yesterday. The Australian dollar was at $0.7340 after touching highs around $0.739 in the previous session.

— CNBC’s Fred Imbert and Christina Wilkie contributed to this report.


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