‘Reacting to Fed’s wrath’: ASX down 2 per cent, defying futures

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Amir said that until inflation and interest rates stabilise, market volatility will continue. That, in part, is due to inconsistent from the Reserve Bank.

“They said the inflation rate will peak just under 8 per cent this year – but last year they said they wouldn’t be rising interest rates until 2024.”

Meanwhile, despite the energy sector slumping, coal companies are some of the day’s best performers. These gains point to an increasing demand for the material with a lack of supply, as global mandates to phase fossil fuels out make it “very hard to also get the reserves out of the ground – even though they are there.”

“The government have not invested enough resources to flick the clean energy switch on. 2024 is the year when clean energy will meet non-peak demand,” she said. “From now to then, coal demand remains our number one source of energy.”

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In other news, lithium prices in China and Australia hit record highs, in a boost for miners in the sector.

“Holding us up is our mining companies, and that’s something that’s likely to continue.”

Meanwhile, tech stocks are continuing to deepen their losses, which Amir says can be traced back to interest rate hikes.

“If you take a look at the three worst performers of the day, they’re all sectors that suffer in high-interest rate environments,” she said. “They’re technology stocks and they’re property groups, and their earnings. Their earnings pull back in the future when interest rates rise – the market is again pricing that in. This will continue to happen each time central banks rise rates. ”

Wall Street fell lower on Thursday, adding to weekly losses for major indexes as central banks around the world hiked interest rates to fight inflation.

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The S&P 500 fell by 0.8 per cent, while the Dow Jones dropped 0.4 per cent and the Nasdaq lost 1.4 per cent. Every major index is solidly on track for weekly losses. The Australian sharemarket is set to open lower, with futures at 6.15am AEST pointing to a fall of 13 points, or 0.2 per cent. On Thursday, the ASX was closed due to the national day of mourning to mark the passing of the Queen. On Wednesday, the ASX tumbled by 1.6 per cent.

Wall Street lost more ground on Thursday.

Wall Street lost more ground on Thursday.Credit:NYSE

Wall Street’s losses were broad and led by retailers, technology stocks and industrial companies. Starbucks lost 4.4 per cent, American Express shed 3.8 per cent and UPS dropped by 3.4 per cent. Amazon lost 1 per cent.

Smaller company stocks fell more than the broader market in a sign that investors were worried about the economy. The Russell 2000 fell 2.3 per cent.

Bond yields rose. The yield on the 2-year Treasury, which tends to follow expectations for Fed action, rose significantly to 4.12 per cent from 4.02 per cent late Wednesday. It is trading at its highest level since 2007. The yield on the 10-year Treasury, which influences mortgage rates, jumped to 3.69 per cent from 3.51 per cent from late on Wednesday.

Investors are worried that the Fed could get even more aggressive on interest rates, but if prices stabilise that won’t need to happen, said Barry Bannister, chief equity strategist at Stifel. It could take more than a year for that process to play out, he said.

“The question is, what’s the patience level for both the Fed and the market,” he said.

Central banks in Europe and Asia raised interest rates a day after the Federal Reserve made another big rate hike and signalled that more were on the way.

Britain’s central bank raised its key interest rate by another half-percentage point. Switzerland’s central bank raised its benchmark lending rate by its biggest margin to date, 0.75 percentage points, and said it couldn’t rule out more hikes. Central banks in Norway and the Philippines also raised interest rates.

The Fed and other central banks are raising interest rates in to make borrowing more expensive. The goal is to slow economic growth enough to tame inflation, but not so much that economies slip into a recession. Wall Street is worried that the Fed may be pumping the brakes too hard on an already slowing economy, which makes steering into a recession more likely.

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On Wednesday, Fed chair Jerome Powell stressed his resolve to lift rates high enough to drive inflation back toward the central bank’s 2 per cent goal. Powell said the Fed has just started to get to that level with this most recent increase. The US central bank lifted its benchmark rate, which affects many consumer and business loans, to a range of 3 per cent to 3.25 per cent. That is the fifth rate hike this year and up from zero at the start of the year.

The Fed also released a forecast known as a “dot plot” that showed it expects its benchmark rate to be 4.4 per cent by year’s end, a full point higher than envisioned in June.

AP

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