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The share market plunged more than 4.7 per cent to a 16-month low as recession fears rattled financial markets.

A holiday-shortened week got off to a sobering start as the S&P/ASX 200 played catch-up with two days of heavy selling on Wall Street.

The Australian benchmark dived almost 5.3 per cent in the opening minutes of trade before paring its loss to 330 points or 4.76 per cent. A fall of that scale would be the largest in percentage terms since May 2020.

All 11 sectors lost at least 2.2 per cent. Just three of the index’s 200 companies were ahead at the halfway mark. The ASX 200 traded below 6600 for the first time since February 2021.

What’s driving the market

Investors ran for cover after an uptick in May consumer prices in the US dashed hopes global inflationary pressures peaked in March. The S&P 500 slumped into a bear market amid fears the war on inflation will inevitably push western economies into recession.

Overnight, the Washington Post called for the Federal Reserve to raise its target rate by a whopping 75 basis points tomorrow night.

“The Fed gains little by delaying the pain that everyone sees coming at this point. The biggest risk for the Fed is not doing enough to fight inflation,” the newspaper said in an editorial.

Bond and equity markets began selling off when Friday’s inflation report was released and kept falling last night. The S&P 500 dropped 3.88 per cent, adding to a 2.91 per cent decline on Friday.

“Clearly the Fed will have to lift rates more aggressively and markets are pricing in a 30% chance of a 75bp rate hike on Wednesday, while 50-75bp hikes appear the norm with markets pricing in 287bp of hikes over the next five FOMC meetings, up from 209bp on Thursday,” NAB’s Director, Economics, Tapas Strickland, said.

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

Today’s plunge set the ASX 200 on track for a technical correction, defined as a close more than 10 per cent below a recent high. At this morning’s low the index was almost 14 per cent beneath its August 2021 all-time high. The index traded above 7600 as recently as April.

UBS today joined other forecasters in lowering its outlook for the Australian economy. 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.

Going up

Just three ASX 200 component companies were ahead at the halfway mark. Corporate register Computershare edged up 0.3 per cent.

Uniti Group and Crown Resorts were cushioned by takeover offers. Uniti tacked on 0.2 per cent. Crown gained 0.04 per cent.

Record monthly output lifted gold miner Westgold 1.07 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 9.82 per cent.

Among the minnows, Gas2Grid bounced 50 per cent on miniscule volume, Lakes Blue Energy also gained 50 per cent. Pancontinental Energy firmed 20 per cent.

Going down

Sector losses ranged from 2.23 per cent for defensive consumer staples up to an eye-watering 7.16 per cent for the tech sector. Tech stocks provided many of the pandemic’s best performers, but the sector has shed 46 per cent of its value since November as investors abandon companies seen as most exposed to higher rates.

Afterpay parent Block plunged 18.46 per cent to an all-time low on the ASX. BNPL rival Zip Co slumped 19.05 per cent to a six-year low. Novonix shed 10.61 per cent, WiseTech 8.28 per cent and Megaport 7.2 per cent.

Among the mining majors, Fortescue Metals sank 9.46 per cent, BHP 6.1 per cent and Rio Tinto 5.6 per cent. Chalice Mining dived 13.39 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 4.03 per cent.

The big four banks lost between 4.1 and 4.8 per cent. US-facing businesses were also hit hard. James Hardie slid 9.64 per cent, CSL 4.27 per cent and PointsBet 11.84 per cent.

A record month kept Viva Leisure near break-even. The health club operator cracked $10 million in monthly revenue for the first time in May. The share price eased 2.78 per cent.

Adelaide Casino operator SkyCity Entertainment eased 3.5 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 1.94 per cent. China’s Shanghai Composite gave up 0.6 per cent, Hong Kong’s Hang Seng 0.59 per cent and Japan’s Nikkei 1.98 per cent.

US futures rebounded from four days of falls. S&P 500 futures firmed 18 points or 0.47 per cent.

Oil continued to weather the storm. Brent crude edged up 17 US cents or 0.14 per cent to US$122.44 a barrel.

Gold fell further below a three-week low. The yellow metal eased US$1.90 or 0.27 per cent to US$1,826.90 an ounce.

The dollar steadied at 69.4 US cents after losing roughly 2.5 cents across the long weekend.

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