Last week Australia’s share market took a beating as trade tensions between the US and China intensified, and it’s not over yet.
This morning, the ASX opened lower after yet another drop on Wall Street overnight.
Also read: Wall St falls on geopolitical tensions
Also read: Trade wars hurt both sides: RBA governor
The benchmark S&P/ASX200 index was down 7.8 points, or 0.12 per cent, to 6,582.5 points at 1030 AEST on Tuesday, while the broader All Ordinaries was down 7.3 points, or 0.11 per cent, to 6,662.8 points.
What’s happened now?
Today, US stocks have dropped again, with geopolitics spooking equity investors and sparking fears of an impending recession.
All three major US stock indexes closed sharply lower, with little to soothe market jitters over Hong Kong protests and the US-China tariff dispute that continues to rattle the market.
Brian Battle, director of trading at Performance Trust Capital Partners in Chicago, said the stock market was selling off because the bond market "is rallying like crazy".
"There's a flight to safety and there are multiple silos of political uncertainty," he said.
Will it affect Australia?
Much like last week, the ASX could feel the after-effects of Wall Street’s drop later this week.
CommSec chief economist Craig James told Yahoo Finance that the escalating US-China trade will reduce the potential for global growth, and is weighing significantly on the profitability of major companies around the world, including Australia.
“That’s why we’ve seen share markets weaken significantly. We don’t know where this one’s going to be resolved from.”
The Reserve Bank of Australia’s Philip Lowe addressed the trade war during a Parliamentary inquiry into the RBA’s decision behind keeping rates a record low of 1.0 per cent, saying if tensions don’t fade, hesitance to invest is likely to hang around for a long time and undermine growth.
"If people don't want to invest, growth around the world will be lower and that will affect us here in Australia, including through wage growth and asset prices, so it's a very significant issue."
Is there a recession on the horizon?
A weak stock market begs the question: are we headed for a recession?
AMP Capital chief economist Shane Oliver told Yahoo Finance earlier this week that the length and severity of the US-China trade war is a bigger concern for the economy than the short-term share market plunge.
"It is quite normal for share markets to go through corrections every so often," Oliver said.
"It doesn’t necessarily mean Australia’s going to go into recession, but obviously it’s a risk."
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