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The share market was set to tumble more than 2 per cent after unexpectedly hot US inflation data triggered Wall Street’s heaviest fall in two years.
The Nasdaq Composite dived more than 5 per cent as the August consumer price index dashed hopes inflation had peaked. The Dow lost more than 1,000 points. The S&P 500 gave up 4.3 per cent during its worst night since June 2020.
The Australian dollar plunged more than 2 per cent. On commodity markets, oil and most metals declined.
Futures markets suggest the S&P/ASX 200 will open 159 points or 2.27 per cent lower at 6,850.
Wall Street
US stocks wiped out almost four days of gains after August data indicated inflation remained stubbornly high, ending speculation the Federal Reserve might be able to ease its aggressive pace of rate increases.
The S&P 500 slumped 178 points or 4.32 per cent. The Dow Jones Industrial Average fell 1,276 points or 3.94 per cent. The Nasdaq Composite shed 633 points or 5.16 per cent.
The market’s four-session winning run came to a crashing halt after headline inflation increased 0.1 per cent month over month, defying expectations for a decline of 0.1 per cent. Increases in rent, food and electricity offset a relief at the petrol pump.
Prices were 8.3 per cent higher than the same month last year. Economists expected a reading of around 8.1 per cent.
Core inflation, a measure favoured by the Fed that excludes volatile food and energy prices, increased twice as much as expected. Core CPI increased by 0.6 per cent month-on-month. On a 12-month basis, prices rose from 5.9 per cent to 6.3 per cent .
“It’s becoming more apparent to market participants that the amount of tightening from the Fed thus far has not been enough to cool the economy and bring down inflation,” Charlie Ripley, senior investment strategist at Allianz Investment Management, told Reuters.
The sell-off left few stocks untouched. More than 98 per cent of the S&P 500’s component companies declined. Notable falls included Nvidia -9.47 per cent and Facebook parent Meta Platforms -9.37 per cent. Apple and Microsoft lost more than 5 per cent.
Growth stocks copped the worst of the selling as treasury yields surged. The inversion between the two- and ten-year treasuries blew out further in a possible sign of looming recession.
While the market has priced in a 75 basis points increase to the target federal funds rate next week, the odds on a full percentage point hike crept up to 18 per cent, according to CME’s FedWatch tool.
“The Fed has increased by three full percentage points in the last six months,” Paul Nolte, portfolio manager at Kingsview Asset Management, said. “We have not yet felt the full impact of all those increases. But we will feel it.
“We are at recession’s doorstep.”
Australian outlook
A challenging day coming up for investors and traders alike. Markets got ahead of themselves in pricing in a downturn in US inflation that did not eventuate. The price of that misreading will be heavy for some.
The S&P/ASX 200 has put on 280 points or almost 4.2 per cent in four sessions. Much of those gains will evaporate shortly after the opening bell. Where the market goes after that will depend on whether US equity futures show any hint of a recovery.
The S&P 500 finished the session within 25 points of last week’s six-week low. A fall through that level would bring the June lows back into play. The ASX 200 has a deeper cushion, thanks in part to lower inflation and a shallower rates trajectory.
The dollar was trampled underfoot in a stampede to the perceived security of the greenback. The Aussie dived 2.36 per cent to 67.3 US cents, a huge move in currency terms. The Australian unit traded above 69 cents just yesterday.
There is little comfort in US sector analysis. Declines ranged from 2.45 per cent for the energy sector up to an eye-watering 5.63 per cent for communication services (Facebook, Google, etc).
Tech lost 5.35 per cent, real estate 3.84 per cent, industrials 3.79 per cent, financials 3.77 per cent and materials 3.54 per cent.
BHP and Rio Tinto shed at least 3.7 per cent in US trade (detail below). Gold stocks failed once again to offer a haven as metal prices retreated. The NYSE Arca Gold Bugs Index dropped 3.57 per cent.
There is nothing on the domestic economic diary today to change the narrative.
Breville and Costa Group trade ex-dividend.
IPOs: the debut of Octava Minerals, originally pencilled in for today, has been pushed back to Friday.
Commodities
Oil‘s three-session winning run ended as the prospect of higher interest rates weighed on the demand outlook. Brent crude settled 83 US cents or 0.9 per cent lower at US$93.17 a barrel.
Precious metals were pressured by a surge in short-term US treasury yields to 14-year highs. Gold for December delivery settled US$23.30 or 1.3 per cent lower at US$1,717.40 an ounce. Silver fell 37 cents or 1.9 per cent to US$19.49 per ounce.
Copper turned lower with other economically-sensitive risk assets. Benchmark copper on the London Metal Exchange declined 1.1 per cent to US$7,994.25 a tonne. December copper dropped five cents or 1.5 per cent in US trade to US$3.555 a pound.
Nickel lost 1.1 per cent on the LME. Tin gave up 0.4 per cent. Aluminium and zinc improved 1.3 per cent. Lead firmed 0.2 per cent.
BHP and Rio Tinto sank in US trade despite a rally in iron ore yesterday after embattled Chinese property developer Evergrande announced it would restart construction on most of its 700+ stalled projects.
BHP‘s US-traded depositary receipts dived 4.33 per cent. The miner’s UK listing eased a more modest 1.14 per cent. Rio Tinto shed 3.67 per cent in the US and 0.72 per cent in the UK.
The spot price for iron ore landed in China firmed 52 US cents or 0.5 per cent to US$102.13 a tonne. The most-traded January ore contract on the Dalian Commodity Exchange climbed 14 yuan (US$2) to 728.50 yuan.
