ASX: Australian stocks drop more than 5% after global sell-off on inflation fears | Australian economy
Australian shares have joined a global retreat, dropping more than 5% at the opening, as investors fear central banks will lift interest rates more aggressively, slashing economic growth and companies’ profits.
The benchmark ASX200 share index of the top 200 companies lost just over 5.2% within the first quarter an hour of trading, or more than 360 points. A minor rebound pared the losses to about 4.8%. The Australian dollar also dropped below 70 US cents.
Australian markets were closed on Monday, sparing them some of the falls from international markets last Friday.
Those declines, though, continued on Monday, particularly in the US where the broad-based S&P500 share index slumped 3.9% and the tech-dominated Nasdaq index plunged 4.7%.
The three-day loss of 9% on the S&P500 sent that index below 20% from its January peak, sending it into so-called bear market territory.
Investors were spooked by inflation figures, particularly for US consumer prices. Last week the government reported that inflation had increased to an annual rate 8.6% in May, the most since December 1981, and more than the 8.3% markets had expected.
That news came before the meeting this Thursday morning (eastern Australian time) of the US Federal Reserve’s federal open markets committee that investors now expect will decide to lift its key interest rate by 0.75 percentage points to quell inflation.
“The May CPI release undermined Fed expectations that inflation would moderate in [the June quarter], and we fully expect the Fed to make upward revisions to its inflation and fed funds rate projections,” ANZ said in a note on Tuesday. “GDP growth meanwhile is due a downgrade.”
It added: “Higher inflation, slower growth and higher interest rates are a damaging combination for financial assets. Until evidence emerges that inflation is peaking and on a sustained downwards track, financial asset prices will remain under pressure.”
Adding to those concerns were the results of survey by the New York Fed that showed consumers were raising their expectations about coming inflation.
Australia faces similar challenges although the impact of rising inflation has been lagging many overseas markets.
Still, the Reserve Bank in May lifted its cash rate target for the first time since 2010 and then followed up last week with its biggest increase in more than two decades, showing signs that it too plans to act swiftly.
“We now have the [RBA’s] cash rate target at 2.35% by November, some six months earlier than we previously expected,” ANZ said.
More details soon …