The Wrap:ASX dives to three-month low as pound crashes on recession fears

Welcome to your five-minute update of the trading day and how the experts are seeing it.

The numbers:The Australian sharemarket has started the week in negative territory,shedding 1.6 per cent in a broad sell-off that inflicted heavy losses on the energy and minerals sectors.

The ASX200 on Monday closed 105.3 points weaker to 6469.4,a three-month low. Energy stocks shed 6.12 per cent,while mining stocks dropped around 5 per cent as commodity prices drifted lower.

The lifters: Healthcare company Nanosonics gained 4.7 per cent;IT provider Megaport moved up 3.62 per cent;and biotech heavyweight CSL pushed up 2.4 per cent,as the healthcare sector outperformed the market.

The laggards:Costa Group slumped 14.17 per cent after the shock departure of its CEO;Whitehaven Coal dropped 14 per cent as investors cooled on coal’s outlook;and Link fell 9.7 per cent after pulling the plug on a proposed acquisition.

The lowdown:Mining and energy stocks led a broad sell-off on the Australian sharemarket,while the pound and Euro crashed to record lows,as the prospect of further interest rate hikes and a US recession spooked investors.

The pound crashed to an all-time low of $1.035 USD in Asian trading on Monday after new finance minister Kwasi Kwarteng unveiled historic tax cuts funded by huge increases in borrowing.

The 4.7 per cent plunge in the pound,most of which happened over 20 minutes,outstripped the decline in the currency following the successful Brexit vote in 2016. The pound is now at more than a 50 per cent chance of reaching parity with the US dollar,which could prompt an unprecedented currency crisis for Liz Truss’ government just weeks into its tenure.

Nick Twidale,chief executive at FP Markets,said the pound’s decline highlighted investor uncertainty around Britain’s economy and the broad strength of the dollar against the major currencies.

“Sometimes the markets react in a positive way to this[stimulus] because there’s more money coming into the economy,but I think it’s seen as a bit of a panic measure,and that’s why it’s gone the other way,” he said.

“There’s no reason to not be looking to buy dollars on any dips at the moment against most of the majors.”

On the local bourse,energy and mining stocks took a hit as a sky-high US dollar continues to weigh on commodity prices.

Saxo Markets analyst Jessica Amir said investors were also waiting to see whether the federal government would approve 29 applications for new coal mines,which would increase coal supply by more than 250 million tons a year - and contribute as much as 17 billion tons of carbon dioxide emissions.

“Expecting more profit taking,selling and potential shorting in coal companies until we see more clarity about what the Australian government is going to do with these new or expanded coal mines,” she said.

Elsewhere,healthcare stocks including CSL and ResMed performed well heading into European winter,while fellow heavyweight Ramsay Health Care shed 2 per cent after it told the market that there was no new takeover offer for the company forthcoming. The $20 billion offer lobbed by a consortium led by private equity giant KKR for Ramsay was taken off the table earlier this month.

Australia’s biggest fruit and vegetable wholesaler Costa Group’s shares have come under pressure,dropping around 14 per cent to $2.20,after the sudden exit of company chief executive Sean Hallahan.

Link Administration also felt the pinch after it confirmed a takeover bid by Canadian suitor Dye&Durham had failed,shedding 7.86 per cent to $3.05 at the close.

Investors will be keeping a keen eye this week on the Australian Bureau of Statistic’s latest retail trade figures,released on Wednesday,and CPI inflation for July and August,which will be released on Thursday.

Tweet of the day:

Quote of the day:“She’s an outstanding leader and she’ll be leading a very experienced senior team at Jetstar to keep building on the strengths of that business.” Qantas chief executive Alan Joyce on long-serving airline executive Stephanie Tully,who will take the helm at the airline’s budget arm Jetstar in November.

You may have missed:Australia plans to toughen privacy rules to force companies to notify banks faster when they experience cyberattacks,Prime Minister Anthony Albanese said on Monday,following a major attack on telecommunications giant Optus which exposed the personal data of up to 9.8 million current and former customers.

With Reuters

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Angus Thomson is a reporter at the Sydney Morning Herald.

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