ASX 200 takes $58b hit as Wall Street, Australian dollar sinks from inflation

ComputerShare has so far emerged from this morning’s bloodbath unscathed, adding 0.82 per cent to its share price, the only company listed in the green.

Elsewhere, the real estate and technology sectors are down 3.9% and 3.7%, respectively. Market favorite WiseTech cut its share price 4.3 percent this morning, while accounting software Xero is down 6.6 percent.

On Wall Street, the S&P 500 sank 4.3 percent, while the Dow Jones dropped 3.9 percent and the Nasdaq fell 5.2 percent. All three indexes posted their biggest one-day percentage declines since June 2020, according to Commsec analyst Steven Daghlian.

“Note that this follows a four-day, 5 percent winning streak for US markets,” he added.

Bond prices also fell sharply, lifting their yields, after a report showed inflation slowed to just 8.3 percent in August, instead of the 8.1 percent economists had expected. The US dollar soared, hitting other currencies. The Australian dollar is 2.3 percent lower at 67.32 US cents as of 6:40 a.m. AEST.

Charging

Seema Shah, chief global strategist at Principal Global Investors, says the US Federal Reserve has left no room for ambiguity when it comes to inflation.

“The Fed’s position is quite clear. Given the enormity of the inflation task ahead, a weakened economy cannot stand in the way of further monetary tightening, and rates will need to remain tight for an extended period. For investors: position portfolios for a more sustained monetary tightening campaign.”

The higher-than-expected reading means traders are bracing for the Federal Reserve to finally raise interest rates even higher than expected to combat inflation, with all the risks to the economy that that entails.

“We now expect the FOMC (Federal Open Market Committee) to raise the fed funds rate by 75 basis points (at a risk of 100 bps) when it meets next week,” Commsec said this morning. “This is expected to be followed by 50bp rate hikes in November and December, to a maximum of 4% to 4.25%.”

Fears over higher rates sent prices tumbling for everything from gold to cryptocurrencies to crude oil.

“Right now, it’s not the journey that’s as worrying as the destination,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “If the Fed wants to raise and hold, the big question is at what level.”

Most of Wall Street began the day thinking the Fed would raise its key short-term rate by three-quarters of a percentage point at its meeting next week. But the hope was that inflation was rapidly falling to more normal levels after peaking in June at 9.1 percent.

Investments seen as the most expensive or the most risky are the most affected by the higher rates. Bitcoin is 9.4 percent lower at $20,296 as of 6:57 a.m. AEST on Bitstamp.

Apple, Microsoft and Amazon fell more than 5% and were the market’s heaviest hitters.

Wall Street slumped as inflation data rattled investors.Credit:access point

The inflation figures were so much worse than expected that traders now see a one in five chance that the Fed will raise rates by a full percentage point next week. That would be four times the usual move, and no one in the futures market predicted such an increase the day before.

Traders now see a greater than 60 percent chance that the Fed will raise its federal funds rate to a range of 4.25 percent to 4.50 percent by March. A day earlier, they saw a less than 17 percent chance of such a high rate, according to CME Group.

The Fed has already raised its benchmark interest rate four times this year, with the last two hikes by three-quarters of a percentage point. The fed funds rate is currently in a range of 2.25 percent to 2.50 percent.

“The Fed cannot allow inflation to persist. You have to do whatever it takes to keep prices from going up,” said Russell Evans, CEO of Avitas Wealth Management. “This indicates that the Fed still has a lot of work to do to reduce inflation.”

with AP

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