IG Markets: Notes on Australian markets today

Kyle Rodda, Market Analyst, Australia

The day's key takeaways:

- The pullback arrives, as coronavirus rattles market sentiment

- ASX200 follows S&P500 down, led by miners and energy stocks

The run down:

There's the old cliché that the higher you climb, the better your view. As corny as it is, it’s probably true. Unfortunately, what’s also true is that the higher you do climb, the bigger the fall should one occur. That’s where traders are at right now. Having bid the prices of growth and risk assets to, in some instances, eye-watering levels, the outbreak of coronavirus, and all the uncertainty that entails, has knocked the market out of its reverie, and kicked the prices of risk-assets back down to earth. The fact that this dynamic is playing out shouldn’t be a surprise. Prices had run along way ahead of market fundamentals, sentiment was truly complacent, and, as many-a pundit had tipped, the market was vulnerable to a short-term pullback. And thus, although the material impacts of the coronavirus are still to be ascertained, right now, with sentiment flipped, and trading thinned by the Lunar New Year holiday, here’s the sell-off we’ve all been waiting for.

It’s not to suggest that coronavirus won’t have tangible economic and financial impacts. More that it’s too early to know definitively what they are, and that this tumble in risk-assets ought not be considered reflective of a rational re-evaluation of market fundamentals. Volatility, in essence, is back in the ball game, likely to the delight of many traders. Sentiment is rebalancing, with composite CME Put/Call ratio popping higher from its multi-year lows. US equities put in their worst intraday performance since October, and dropping over 1.5 per cent last night. That’s driven the ASX200 down 1.3 per cent today, to trade below the 6700 mark in late afternoon trade. The losses have been broad based. But cyclicals have been the primary underperformers, off the back of concerns about Chinese growth in the short-to-medium term. The materials stocks have been responsible for lopping-off around 30 points from the ASX200 today. While the energy sector is down nearly 3 per cent, as oil prices continue their freefall.