Forecasts suggests the ASX could tumble more than 2 per cent today, compounding the near-3 per cent fall on Friday and sending indices into lows not seen for more than a year.
The local futures index is forecasting a significant loss but IG market analyst Kyle Rodda says a plunging oil market coupled with an increasingly crippled economic supply channel due to virus-induced travel restrictions suggests falls will be further pronounced.
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Italy was thrown into chaos over the weekend after Prime Minister Giuseppe Conte announced a sweeping coronavirus quarantine, closing off a quarter of the country’s population including Milan.
Adding to the global growth volatility, Saudi Arabia slashed its export oil prices, stoking fears of a price war aimed at Russia.
“(Futures) doesn’t take into consideration we have all these reports out of Italy that they’re closing down some pretty major economic regions and we’ve got the complete deterioration between the Saudis and the Russians,” Mr Rodda told news.com.au.
“It’s probably going to be another volatile start to the week.”
Mr Rodda’s analysis of the supply and demand of IG’s clients suggests the market will fall nearly 2 per cent once it opens at 10.00am Sydney time.
“That would take us to quite remarkable lows we haven’t seen since February last year.”
Pepperstone head of research Chris Weston expects US crude oil to be “absolutely taken to the cleaners” based on the news out of the Middle East, which will further stifle investor confidence.
He’s expecting the market to lose 2.5 per cent by the end of the day.
“I don’t think it’s going to be a particularly pretty picture,” Mr Weston told news.com.au.
“I can’t see it (the open of trading) being anything but another horrific one and while energy is smaller part of our market, the implications are far reaching.”
The ASX rose 280 points over two sessions after the Reserve Bank of Australia governor Philip Lowe cut interest rates to a historic low of 0.5 per cent on Tuesday, and an amateur observer would be forgiven for dismissing the radical slumps as just another rise and fall.
But CMC chief market strategist Michael McCarthy says these erratic movements are significant and concerning.
“It tells you that we don’t know what’s going on and that’s the big issue for the market at the moment,” he told news.com.au. “It’s just the uncertainty of the economic impact of the virus.
“We get optimistic about potential central bank support and fiscal stimulus from governments, then we see another school close or another border shut and the sell-off comes.
“That uncertainty means the volatility is likely to continue and, unfortunately, the longer it lasts the more economic damage is done and the more likely we’ll see lower levels on the Australian share market.”