Plunging commodity prices dragged Australian shares lower, as worries about China's tough COVID-19 restrictions and its impact on global economic growth, sapped investor sentiment.
The ASX 200 index closed 2.1 per cent lower at 7,318 points on Tuesday, with every sector posting losses.
The broader All Ords index fell by a similar margin to 7,604 points. In dollar terms, around $55 billion was wiped off the value of the local share market.
Energy and materials stocks suffered heavy losses, like Fortescue Metal (-6.9pc), BlueScope Steel (-8.7pc), BHP (-6pc), Woodside Petroleum (-4.6pc), Santos (-4.3pc) and Rio Tinto (-4.3pc).
Meanwhile, shares in payment solution provider EML Payments plummeted by 38.6 per cent, making it the worst performer on the benchmark index.
That was after it issued a profit downgrade, slashing its pre-tax earnings guidance by about 8 per cent for the current financial year.
Some of other weakest performers include Sims (-9.6pc), Mineral Resources (-9.4pc), Champion Iron (-8.7pc), Liontown Resources (-7.6pc), Tyro Payments (-7.6pc) and Chalice Mining (-7.2pc).
Aussie dollar falls on China's economic worries
The Australian dollar recovered slightly to 72.1 US cents by 4:20pm AEST, but was still near a two-month low.
It has been a volatile week for the local currency, which traded as high as 74.58 US cents last Thursday, before sinking as low as 71.36 US cents yesterday. Essentially, it experienced a peak-to-trough loss of 4.3 per cent.
"Markets fear additional lockdowns in China will restrict activity and impact economic growth, not just in China but also throughout the rest of the world," ANZ economists Brian Martin and Daniel Hynes wrote in a note.
The Australian dollar is particularly sensitive to China's lockdowns and slowing economic growth.
That is particularly given that China is the biggest buyer of Australia's iron ore, which tumbled 9.8 per cent, to $US135.75 a tonne.
'Ridiculous valuations'
On Wall Street overnight, the Nasdaq ended sharply higher as growth stocks staged a late-day rally.
It was after Twitter agreed to be taken over by the world's richest man Elon Musk for $61.4 billion, which drove the social media company's share price up 5.7 per cent.
"I think it's just a confidence thing that, hey, there are still people [who] are willing to pay ridiculous valuations for some companies out there," said Dennis Dick, a trader at Bright Trading.
"You can tell growth wanted to rally all day but the market was holding it down.
"The Twitter news came and that was just a green light to start buying some of the growth names. They have been oversold for a while."
The Nasdaq Composite closed 1.3 per cent higher, at 13,006 points.
The S&P 500 gained 0.6 per cent, to 4,297, while the The Dow Jones index rose 0.7 per cent, to 34,063.
It was a big improvement over last Friday's performance (when the Dow, S&P and Nasdaq suffered heavy losses, down 2.6 to 2.8 per cent, each). It was the Dow's biggest single-day loss since October 2020.
Bleak results from pandemic darling Netflix, along with surging yields in the US bond market pummelled high-growth stocks last week.
This brings the tech-heavy Nasdaq's year-to-date losses to around 18 per cent.
The CBOE Volatility index (VIX) — known as Wall Street's fear gauge — jumped as high as 31.6 points, its highest level since mid-March.
US rate hikes weigh on markets
Earlier, uncertainty reverberated across world markets, with China's stock market recorded its worst trading day since a pandemic-led sell-off in February 2020.
On Monday, while the Australian market was closed due to ANZAC Day, the Shenzhen Component tumbled 6.1 per cent, while the Shanghai Composite fell 5.1 per cent.
European stocks also fell to their lowest point in more than a month, with the STOXX 600 index dropping 1.8 per cent, on fears of the impact of strict restrictions in China.
Traders are pricing in big moves by the US Federal Reserve this year to control inflation after a series of hawkish remarks from policymakers.
Fed chair Jerome Powell last week gave a "go" sign to a half-point rate hike in May and signalled he would be open to "front-end loading" the US central bank's retreat from super-easy monetary policy.
Money markets are pricing in a 1 percentage point increase in U.S. interest rates at the Fed's next two meetings and at least 2.5 percentage points for the year, which would be one of the biggest annual increases ever.
Oil sinks on China lockdowns
Commodity prices suffered big losses overnight, with spot gold dropping 1.7 per cent, to a four-week low of $US1,897 an ounce on the back of a stronger US dollar.
Mass testing for COVID-19 has commenced in Beijing's largest district, sparking fears that China's capital city could be placed into lockdown, delivering a further dent to global economic growth.
On oil markets, Brent crude futures plunged 3.7 per cent, to $US102.74 a barrel, and West Texas Intermediate crude slumped 3.5 per cent to $US98.54.
"The prospect of slower economic growth this year amid US interest-rate hikes ... has already led to a downward revision of oil-demand forecasts," analysts at the Eurasia Group consultancy said.
They also noted: "The longer the Ukraine war and the China lockdowns persist, the higher the risk that demand growth will be even weaker."
Since soaring to their highest since 2008 in early March, oil prices have collapsed by about 25 per cent.
ABC/Reuters
