The Australian share market has enjoyed a reprieve from the intense selling pressure that hit global markets in the last 24 hours, easing immediate concerns over a meltdown sparked by US recession fears.
Australia’s S&P/ASX200 index closed on Tuesday at 7,680, up 0.4% on Monday’s closing price.
The positive trading day came after the benchmark index shed 5.8% over two volatile days that have erased $160bn of value from shares. The index is now flat for the year.
Investors in the US, Europe and Asia have been unwinding their positions in response to weak US jobs data that triggered a recession indicator, after a prolonged period of strong gains underpinned by excitement over artificial intelligence and the wider tech sector.
The US Federal Reserve has also flagged it would soon start cutting interest rates, in a move that investors interpreted as a sign that the economy was weakening.
In response, so-called risk assets such as equities have been falling, while investors shifted their money into safe havens such as bonds.
But the market has shown some signs of resilience, with the chip maker Nvidia, as well as the Australian dollar, paring their initial sharp losses.
American investment company BlackRock said in a research note it believed recession fears were “overblown” and that the jobs report was “more in line with a slowdown than a recession”.
Wall Street’s gauge of fear, the CBOE volatility index, spiked to above 65 early in the US session, a level not seen since the onset of the pandemic. It then settled back at 38.
“The general rule of thumb is that a VIX reading below 20 represents expectations for a low-risk environment, while readings above 20 signal expectations for higher volatility,” said Mike Rode, senior investment director at American Century Investments.
The improved sentiment has raised questions among analysts over whether a market crash is taking hold, or if it’s an overdue pull-back after a period of strong returns.
Some of the stocks sold down heavily on Monday, including Commonwealth Bank, rebounded strongly on Tuesday. CBA shares jumped by 2.2% on Tuesday.
The stock market held on to its gains after the Reserve Bank left its cash rate unchanged on Tuesday, amid warnings inflation remained too high.
While the recent selling trend had been consistent around the globe, some markets have suffered more than others, with Japan’s Nikkei plunging by 12% on Monday.
The Nikkei bounced 10% on Tuesday marking its biggest single day rise.
Traders are bracing for several volatile weeks of trading as the upbeat sentiment that led to market highs clashes with recession fears.
