Global markets fell overnight after an escalation in trade tensions between the US and China, with the Dow Jones dropping back below where it started the year.
Industrial stocks were the worst hit on Wall Street. Aircraft maker Boeing and equipment manufacturer Caterpillar led the heavy falls on the Dow Jones.
Investors were shaken by an escalation in trade tensions, after US President Donald Trump threatened further tariffs on Chinese goods.
Eurozone and US government bond prices increased as investors sought a safe haven, with US 10-year treasury yields falling to a three-week low.
"Investors are waking up to the idea that all the rhetoric on trade could be more than just a negotiating tactic," said Emily Roland, head of capital markets research at John Hancock Investments.
However, the falls on US and European markets were not as steep as those seen on Asian markets yesterday, when the Shanghai Composite fell 3.8 per cent.
"Much of the reaction looks to be catch up to price action in Asia yesterday, rather than another full-blown new round of market risk aversion," NAB economist David de Garis said.
ASX futures point to Australian market rally
Despite the negativity on global markets, the Australian sharemarket could be set to make gains at the start of trade, with ASX SPI 200 futures higher.
Yesterday the Australian market finished fairly flat, managing to avoid the steep sell-off seen across Asian markets.
Telstra will be a major focus for investors this session as it gives a strategy update in Sydney this morning.
Analysts and shareholders alike will be looking for information about the telco's future direction and where it will grow earnings in the long term.
Yesterday, some customers of Telstra's wholesale platform including Aldi Mobile and Woolworths Mobile were hit by outages but Telstra said its own 3G and 4G networks were unaffected.
