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Australian shares fall as recession fears knock risk appetite, NZ down

Risk sentiment took a massive blow after President Trump warned of a "painful" two weeks ahead in fighting the coronavirus.

Reuters|
Last Updated: Apr 02, 2020, 01.29 PM IST
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The Australian financial sector dropped 4.2% at close, with almost all its components, including the "Big Four" banks, firmly in the negative territory.
Australian shares closed lower on Thursday, dragged down by the heavyweight financials sector as fears of a possible coronavirus-influenced global recession rose, following the U.S. President Donald Trump's warning about a rise in virus death toll in the country.

The S&P/ASX 200 index tracked Wall Street losses overnight and fell 1.98% to 5,154.30 at the close of trade, taking a chunk out of the benchmark's 3.6% gain on Wednesday.

Risk sentiment took a massive blow after President Trump warned of a "painful" two weeks ahead in fighting the coronavirus, with a mounting death toll that could stretch into hundreds of thousands despite strict social distancing measures.

"The AXJO is travelling through a RO RO (Risk On vs Risk Off) period. However I see more downside for our market. The free money offered by the government is a sugar hit and will be short lived. The macro issues are still very much unresolved," said Brad Smoling, managing director at Smoling Stockbroking.

Like other governments around the globe, Australia has also pledged significant financial support for its economy to limit an economic crisis brought on by the coronavirus pandemic, amid a gruelling first quarter to the year.

The Australian financial sector dropped 4.2% at close, with almost all its components, including the "Big Four" banks, firmly in the negative territory.

Australia's largest lenders, with units in New Zealand, were put under pressure after their neighbour country's central bank ordered banks to skip dividend payments and redeem capital notes. Investors fear Australian banks may follow down the same path.

Additionally, ratings agency Moody's downgraded its outlook for Australia's banking system to "negative" from "stable" on Thursday, as the coronavirus is expected to hit profitability via increasing provisions for loan losses and record low interest rates.

Miners fell 0.6% at close, hurt by a fall in iron ore prices. BHP Group and peer Rio Tinto both settled more than 1% lower.

Bucking the trend, gold stocks climbed 2.4% at session end.

Gold explorer Evolution Mining finished 3.4% up, while Silver Lake Resources closed 5.5% higher.

The energy sub-index climbed 0.4% at close, helped by a jump in oil prices. Santos advanced nearly 6%, while Origin Energy finished 3.3% up.

Across the Tasman sea, New Zealand's benchmark S&P/NZX 50 index ended about 0.6% down at 9,870.56.

NZ-listed shares of Australia and New Zealand Banking Group fell 5.4%, while those of Westpac Banking Corp closed 3.4% down.

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