August has proven to be a challenging month for global stock markets, and the ASX is poised to continue its struggle this week. After experiencing a 2.6% decline last week, the ASX is expected to open on a negative note, with the share price index indicating a 23-point drop at the Saturday morning close (Sydney time).
The situation mirrors the sentiment across Asia, as last week saw markets reaching 9-month lows on Thursday and Friday. Notably, the Hong Kong market has entered a correction phase with a 20% drop since its most recent peak on July 31. Nevertheless, it might find a brief respite from the anticipated rate cut by the Chinese central bank later today.
China's markets have seen a 10% decline, shaken by growing apprehensions surrounding the stability of property and financial investment groups. Wall Street and European markets have also been affected, either in solidarity or due to confusion, amidst the challenging climate of August—a month that often sees market turbulence as summer draws to a close.
The upcoming month of September typically ushers in significant market movements, as more traders and investors conclude their holidays and return to work. This year, they are likely to be met with a sea of red ink and the looming threat of further declines.
However, the interest rate cuts in China expected later today are unlikely to uplift sentiment, as they have already been widely anticipated. The rate cuts implemented in June did not provide much assistance to China's struggling economy or its faltering markets, both of which have experienced substantial declines since then.
In the US, the August sell-off has erased more than a quarter of the S&P 500's gains for the first seven months of the year. A rapid increase in bond yields prompted investors to reconsider whether stocks had become too expensive, particularly following warnings that the market had surged too rapidly. US mortgage rates, reaching over 7% last week—a level not seen in a while—coincided with a pickup in housing starts.
Even a strong earnings report from Amazon provided only a fleeting boost, as the June quarter reporting season failed to provide substantial support. Notably, even a better-than-expected result from Walmart last week could not halt the ongoing sell-off.
Friday saw the Dow gaining 25.83 points, marking a 0.07% increase to close at 34,500.66. The S&P 500 experienced a 0.65% decline, concluding at 4,369.71. The Nasdaq slipped 0.2%, ending the session at 13,290.78.
For the week, Eurozone shares fell by 2.4%, Japanese shares dropped by 3.2%, and Chinese shares experienced a loss of 2.6%. Meanwhile, Hong Kong's market tumbled nearly 6%, setting a somber tone for the week ahead, even in light of the anticipated rate cut.
Investors' attitude towards AI stocks, such as Nvidia and Microsoft, has notably shifted, potentially influenced by speculations about rate rises. The lack of a compelling narrative for investors to rally behind, as was the case with the AI story until July, has contributed to the uncertainty.
Over the past month, Apple, Meta, and Microsoft shares have declined by more than 10%, while Amazon experienced a modest 1.5% dip. Nvidia shares lost 8%, and Tesla fared worse, plunging by 26%. Only Alphabet shares have remained positive during this period, gaining 4.3%. However, their performance alone may not be sufficient to lift the entire market.
Amidst these fluctuations, 10-year U.S. Treasury yields have eased by 7 basis points to 4.2329%, after surging approximately 30 basis points within this month alone, reaching a 10-month peak of 4.3280%—levels not seen since 2007.
Investors are poised for key developments this week, including commentary from Federal Reserve Chair Jerome Powell at the central bank's annual symposium in Jackson Hole. Sentiment, particularly surrounding AI stocks, will be further tested with Nvidia's upcoming earnings announcement next Wednesday (US time).