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The share market skidded towards its worst loss since June after stubbornly high US inflation data bolstered the case for much higher rates by year-end.
The S&P/ASX 200 tumbled 172 points or 2.46 per cent by the halfway mark. Just two stocks on the index traded higher following a horror night on Wall Street.
Overnight, the major indices in the US dived to their heaviest losses since June 2020 after investors were wrong-footed by hotter-than-expected inflation data. Last night’s sell-off was the ninth worst in history, according to Bloomberg.
The ASX boards flashed red as all 11 sectors lost at least 1.7 per cent. Rate-sensitive property and tech stocks were hit hardest. The dollar was dragged towards two-year lows by a flight to the safety of the US dollar.
What’s driving the market
A sobering night for investors stripped away any lingering hope of rates relief any time soon. An up-tick in headline US inflation and a larger-than-expected increase in core inflation last month underlined how much more work central banks have to do to rein in prices. The fear in the market is the global economy (and by extension stock prices) will fall victim to the war on inflation.
“Given Fed’s clear mandate, a 75 basis point hike in federal funds rate next week is almost certain, with 20% chances of even a full 100 basis points hike,” Kunal Sawhney, CEO of research group Kalkine, said.
“We now see the federal funds rate peak out between 4.25-4.5% by March 2023, which almost confirms a recession is in the offing in the US.”
The S&P 500 erased almost four days of gains with a dive of 4.32 per cent. The Dow tumbled 1,276 points or 3.94 per cent. The Nasdaq Composite shed an eye-watering 5.16 per cent.
Economists wasted no time adjusting their rates outlook to reflect a more aggressive Federal Reserve.
“We have raised our forecast for the Fed’s December meeting to a 50bp rate hike (vs. 25bp previously). We now expect a 75bp hike in September followed by 50bp hikes in November and December, which would take the funds rate to 4-4.25 per cent by the end of the year,” Goldman Sachs said.
This morning’s plunge put the ASX 200 on course for its heaviest fall since June 14. The index dived 366 points intraday that session before paring its loss to 246 points.
Despite the scale of today’s fall, the index was still higher than it was last Wednesday. The ASX 200 closed at a seven-week low that session.
Going up
The winner’s podium was a lonely place for much of the morning. Computershare was the only stock on the Australian benchmark to rise in the first hour. The share registry bounced a slender 0.25 per cent from a sharp fall yesterday.
ResMed turned positive late morning, rising 0.53 per cent as traders sought havens from the carnage among risk assets.
Outside the index, Australian Pacific Coal jumped 42.22 per cent following a joint-venture proposal from privately-owned Tetra Resources and Javelin Private Capital. The bidders seek to establish a joint venture and an agreement to manage the Dartbrook coal project in the Hunter Valley. The AQC board said the proposal was non-binding, conditional and at an extremely early stage.
Altech Chemicals rallied 21.25 per cent on news of a joint venture with a “world-leading German battery institute” to develop solid state batteries. Altech will have 75 per cent ownership of the venture, with Fraunhofer IKTS owning the other 25 per cent.
Going down
Borrowing-dependent property stocks led the selling as bond yields jumped in expectation official rates will go much higher. The yield on ten-year Australian government bonds climbed nine basis points to 3.67 per cent.
Industrial property giant Goodman Group slumped 5.49 per cent. Charter Hall Group shed 4.78 per cent, Stockland 4.97 per cent and Abacus Property 5.05 per cent.
Technology was the morning’s other major loser for similar reasons: increased borrowing costs mean lower valuations. Megaport skidded 9.67 per cent, BrainChip 6.22 per cent and Xero 5.62 per cent.
Other growth stocks to feel the heat included Clinuvel -11.19 per cent, Zip Co -6.42 per cent and Novonix -6.17 per cent.
The ASX gold index fell 3.8 per cent after precious metals failed to provide protection from the market turmoil. Gold dropped 1.9 per cent overnight and shed another 0.3 per cent this morning.
West African Resources shed 6.76 per cent, Silver Lake Resources 6.13 per cent, Gold Road Resources 5.82 per cent and Regis Resources 5.49 per cent.
A dispute with a joint venture partner knocked Lake Resources down 12.2 per cent. The lithium miner said it was in dispute with Lilac Solutions over the timeline for meeting milestones for the Kachi Pilot Plant in Argentina.
Rio Tinto announced a joint venture with its largest customer, China Baowu Steel, to develop a $2 billion iron ore project in the western Pilbara. Construction is expected to begin early next year, with production to follow in 2025. The share price eased 1.37 per cent.
The big four banks lost between 2.2 and 3.3 per cent. Wesfarmers shed 3.96 per cent, Transurban 3.74 per cent and Coles 3.41 per cent.
Other markets
Asian markets joined the global retreat. The Asia Dow dropped 2.41 per cent, China’s Shanghai Composite 0.58 per cent, Hong Kong’s Hang Seng 2.31 per cent and Japan’s Nikkei 2.12 per cent.
S&P 500 futures bounced 10 points or 0.26 per cent.
Oil clawed back around a quarter of its overnight loss. Brent crude bounced 21 US cents or 0.2 per cent to US$93.38 a barrel.
Gold extended last night’s retreat, falling US$4.40 or almost 0.3 per cent to US$1,713 an ounce.
The dollar dived more than 2 per cent overnight and was lately buying 67.39 US cents.
