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Australian shares plunged more than 3.5 per cent to their heaviest loss since the early months of the pandemic after surging inflation triggered fierce overseas selling across the long weekend.

The S&P/ASX 200 closed at a 16-month low after falling almost 5.3 per cent at the open. The benchmark trimmed its loss to 246 points or 3.55 per cent by the close.

The rout left no sector unscathed. Declines ranged from 1.7-1.9 per cent for traditional havens up to 5.2 per cent for the rate-sensitive tech sector.

What moved the market

Fragile investor sentiment on Wall Street shattered on Friday night just as Australians began a long weekend. An uptick in US consumer prices gave the lie to tentative hopes that inflationary pressures peaked in March.

The reaction was brutal as financial markets priced in higher rates and a greater risk of recession. The Dow booked back-to-back falls of around 880 points. The S&P 500 slumped 6.7 per cent in two tranches into a bear market.

The ASX wasted no time playing catch-up. The ASX 200 collapsed into a technical correction, defined as a close more than 10 per cent below a recent peak. The index ended the session 12.4 per cent off last year’s all-time high.

“The ASX 200 had its worst day since the pandemic and is now clinging on to 6600 support for its dear life. Bears were clearly taking no prisoners with all sectors in the red,” City Index senior market analyst Matt Simpson said.

“The ASX had some catching up to do in regards today’s selloff, after a 3-day weekend. And it certainly did its best to make up for lost time,” he added.

The fear among investors is that the global economy will become collateral damage to the war on inflation. The Federal Reserve gathers tonight for a two-day policy meeting and is expected to increase its target rate by up to 75 basis points tomorrow night.

“A number of analysts fear that the Fed will have to lift rates by 75 basis points (0.75 per cent) at the next policymaking meeting on Wednesday rather than 50bp. And further, the worry is that the Fed will have to be more aggressive with lifting rates at future meetings, raising the risk of a recession occurring over coming months,” CommSec chief economist Craig James said.

While the Australian economy is expected to fare better, supported by strong commodity prices and weaker inflation, it will not be immune to global pressures.

UBS today joined other forecasters in lowering its full-year outlook. The broker cut its calendar-year GDP forecast to 3.9 per cent from a previous prediction of 4.1 per cent. Next year’s growth is also expected to be smaller.

The cost of long-term borrowing in Australia climbed today to its highest in eight years. The yield on ten-year government bonds broke above 4 per cent for the first time since 2014. Yields were below 1.1 per cent less than a year ago.

Winners’ circle

Just eight ASX 200 component companies eked out gains. Medical device developer Polynovo was a clear winner with a rise of 7.79 per cent. Domino’s Pizza gained 2.03 per cent. Corporate register Computershare edged up 1.55 per cent.

Incitec Pivot added 0.29 per cent, APA Group 0.26 per cent and ResMed 0.2 per cent.

Uniti Group and Crown Resorts were cushioned by takeover offers. Uniti tacked on 0.41 per cent. Crown finished unchanged.

Outside the index, record monthly output lifted gold miner Westgold 3.86 per cent. The miner produced 25,100 ounces of gold from its Bryah and Murchison operations.

Lithium miner Lake Resources resisted wider pressure on the sector, rising 13.57 per cent.

ResApp surged 50 per cent after global giant Pfizer raised its offer for the Australian digital health firm. Day trader favourite Athena Resources swung to a gain of 21.74 per cent.

Doghouse

The tech sector enjoyed a tailwind from record-low rates during the pandemic, but is now paying the price. The sector has shed 46 per cent of its value since November.

Afterpay parent Block plunged 15.07 per cent to an all-time low on the ASX. BNPL rival Zip Co slumped 15.87 per cent to a six-year low. Novonix shed 8.04 per cent, WiseTech 6.03 per cent and Life350 5.72 per cent.

Among the mining majors, Fortescue Metals sank 8.48 per cent, BHP 4.24 per cent and Rio Tinto 4.18 per cent. Chalice Mining dived 14.2 per cent.

A contract with the US Department of Defense shielded Lynas Rare Earths from the worst of the selling. The miner’s US subsidiary signed a follow-on contract for US$120 million to establish a heavy rare earths separation facility in the States. The share price cut its loss to 0.47 per cent.

The big four banks lost between 2.75 and 4.6 per cent. US-facing businesses were also hit hard. James Hardie slid 6.88 per cent, CSL 2.7 per cent and PointsBet 9.65 per cent.

A record month failed to prevent a 52-week low for Viva Leisure. The health club operator cracked $10 million in monthly revenue for the first time in May. The share price fell 6.94 per cent.

Adelaide Casino operator SkyCity Entertainment eased 1.95 per cent after forecasting a return to profit. The gaming group expects a full-year net profit of $3.5-$7 million on earnings of $135-$140 million.

Other markets

In Asia, the regional Dow declined 1.39 per cent. China’s Shanghai Composite gave up 0.51 per cent, Hong Kong’s Hang Seng 0.13 per cent and Japan’s Nikkei 1.49 per cent.

US futures rebounded from four days of falls. S&P 500 futures firmed 48 points or 1.27 per cent.

Oil continued to weather the storm. Brent crude edged up 36 US cents or 0.3 per cent to US$122.63 a barrel.

Gold fell further below a three-week low. The yellow metal eased US$3.50 or 0.2 per cent to US$1,828.30 an ounce.

The dollar bounced 0.36 per cent to 69.66 US cents after losing roughly 2.5 cents across the long weekend.

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