ASX 200 suffers worst day since early August selloff

The S&P/ASX 200 tumbled 1.8 percent on Wednesday after weak manufacturing data reignited fears of a potential hard landing and drove a selloff across commodity markets and technology stocks.

Today marks the worst day for markets since 5 August – when the ASX 200 fell 5.8 percent over two sessions due to the unwinding of the Japanese carry trade. All sectors are currently negative, with Energy (-3.5%), Materials (-2.6%) and Technology (-2.6%) leading to the downside. Defensive pockets of the market such as Utilities and Industrials have outperformed on a relative basis.

A two percent drop for the ASX 200 has become rare in recent years – Since 2021, the market has only recorded 15 declines of two percent or more.

Recession fears are back

Recent manufacturing data from China and the US showed signs that those economies may be cooling faster than expected.

The August US ISM Manufacturing Index printed 47.2, up from 46.8 in July but below market expectations of 47.5. This marked the fifth consecutive month of contraction, underpinned by falling new orders and weak demand.

Feedback from survey participants had a negative tilt, highlighting smaller orders, softening demand and more cautious consumer behaviour, that goes beyond normal seasonal fluctuations.

Over the weekend, China's manufacturing PMI for August sank to a six-month low of 49.1 from 49.4 in July and below consensus expectations of 49.5. Producers flagged further price deflation, with the prices paid sub-index down to 42 from 46.3 in July.

Commodities tumble

The weaker-than-expected data drove a sharp selloff for several key commodities including copper, oil and iron ore.

Iron ore prices are down around 7% so far this week from US$101 to US$94 a tonne. This has taken a substantial toll on local iron ore names, with Fortescue (ASX: FMG) down 11.3% over the same period (down around 7% if you exclude the ex-dividend amount).

Fortescue shares have almost halved since January and trading at levels not seen since November 2022 (Source: Market Index)

Copper started the week relatively unchanged but sold off sharply on Tuesday night, down 2.8% to US$4.08/lb. The overnight weakness caused a pure-play copper name like Sandfire Resources (ASX: SFR) to tumble 5.9% on Wednesday.

Sandfire shares are pulling back towards a five-month low (Source: Market Index)

Similarly, oil prices tumbled 4.6% on Tuesday to a fresh nine-month low of US$73.6 per barrel amid demand concerns, potential Libya production restart and expectations for OPEC+ to start backing off output cuts. Woodside (ASX: WDS), Karoon Energy (ASX: KAR) and Beach Energy (ASX: BPT) shares are trading 3-6% lower.

September blues

September has been the worst month of the year for both Australian and US markets. Since 2014, the ASX 200 (on a total return basis) has averaged a 2.2% decline in September and down 80% of the time.

The last four Septembers have been very weak, including 2023 (-2.8%), 2022 (-6.2%), 2021 (-1.9%) and 2020 (-3.7%).

Source: Macquarie Research