Economics & Markets

What happens in Australia if the US market crashes?

By Diana Mousina
Economist - Investment Strategy & Dynamic Markets Sydney Australia

The COVID-19 situation in the United States is looking dire from a human health perspective. With the US still leading global markets, it’s fair to question to what extent Australia will be impacted by the fallout, in spite of its own containment progress.

While it remains true that the US does lead markets, we see a divergence between the COVID-19 experience in Australia and the US, influenced by how the virus outbreak has tracked in both countries.

For starters, Australia’s strict social distancing and economic hibernation moves seem to have had an impact on the daily number of new COVID-19 cases, with the rate slowing from about March 26.

In addition, in line with recommendations from the World Health Organisation, Australia has implemented a comprehensive testing program, which is one of the strongest in the world1. We also have strict quarantine and isolation measures in place for those exposed to or infected by COVID-19. All of these factors combined appear to have had an impact on the mortality rate in Australia, which is tracking better than global counterparts.

Source: Worldometer, Bloomberg, AMP Capital
Source: Worldometer, Bloomberg, AMP Capital
Source: AMP Capital, Worldometer
Source: AMP Capital, Worldometer

The US experience, as you can see from the above charts, has been vastly different to the Australian experience. There is also some shocking data coming out of the US at the moment – in the last few weeks alone, claims for unemployment benefits have increased by nearly 10 million. Unfortunately, we are headed for some more dire results in the coming weeks and months in the US, as more parts of the US go into lockdown and as the daily rate of new cases remains high (although it does look to be stabilising over the past few days).

Source: Bloomberg, AMP Capital
Source: Bloomberg, AMP Capital

It’s important to remember also that policy support will help minimise the downside and boost the recovery, and the scale of stimulus in Australia is massive. The Australian government has announced a third fiscal support package centred on a wage subsidy for over 6 million workers costing $130bn over six months. This brings total fiscal stimulus to be pumped into the economy in the year ahead to just over $200bn or 10% of GDP so far.

Ultimately, we already know it’s bad news in the US, and markets are factoring that in. If the US was to go into a much deeper economic downturn than we’re currently expecting, we believe it would be negative for Australian and indeed global equities. However, that doesn’t mean that Australian equities couldn’t outperform, if domestic conditions weren’t as dire comparatively.

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Diana Mousina, Senior Economist
  • Covid-19
  • Economics & Markets
  • Investment Strategies
  • Market Watch
  • Multi-Asset
  • Opinion
  • Research
  • SMSF News
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While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. The information in this document contains statements that are the author’s beliefs and/or opinions. Any beliefs and/or opinions shared are as at the date shown and are subject to change without notice. This document is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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