Australian shares plummeted over 1 percent on Thursday, with the S&P/ASX 200 index tumbling 1.4 percent to 7671.3 – marking its lowest point since May.
Soaring inflation fuels rate hike fears
Latest data shows Australia’s inflation in May surged to 4 percent, far exceeding expectations and stoking fears of an impending interest rate hike from the Reserve Bank of Australia (RBA). The Central Bank previously indicated a readiness to raise rates if inflation remained stubbornly high. Consequently, analysts at Morgan Stanley now anticipate a rate hike in August, which could dampen domestic trading conditions further.
Impact on rate-sensitive sectors
The inflation data has hurt interest rate-sensitive financial stocks in Sydney, which dropped 1.7 percent, along with the heavyweight mining sector. BHP Group and Rio Tinto shares were down 1 percent and 0.7 percent respectively. Additionally, gold and energy stocks slumped, dragging down the broader market.
Market anxiety over potential rate hikes
The sell-off in Australian shares underscores the market’s anxiety over potential rate hikes. The decline in financial, mining, and real estate stocks highlights the broader economic susceptibility to tightening monetary policy. Investors should keep an eye on sectors sensitive to interest rates and anticipate short-term volatility as the RBA‘s next move looms.
Global implications
With global markets keeping a close watch on inflation data, the upcoming U.S. personal consumption expenditures (PCE) price index release holds significant weight. As the Federal Reserve’s preferred inflation measure, it could influence the Fed’s interest rate decisions, consequently impacting global financial markets. Furthermore, the interlinked nature of these economies suggests that developments in Australian inflation and subsequent rate hikes may signal broader trends and economic shifts worldwide.
For more economy news, click here.
