The benchmark S&P/ASX 200 closed down 3.55% or 246 points at 6686 points, although this was a slight rebound from the morning when it fell to 6600 points. .
The day’s biggest losers came largely from the resources sector, including Fortescue Metals (down 8.48%), James Hardie Industries (down 6.88%) and Bluescope Steel (down 5.48%). 94%).
The early carnage was the ASX 200’s worst loss since March 2020, on fears that the then-looming COVID-19 pandemic could cause huge damage to the global economy.
Today’s results on the local index overnight follow those on Wall Street, where soaring inflation in the United States has fueled fears of an economic recession.
Wall Street has officially been labeled an overnight “bear market”, which in economic terms means prices are falling and investors feel encouraged to sell.
A bear market gets its name from the way a bear slides downward with its claws, leaving marks that are synonymous with falling red lines on stock charts.
Dow drops 876 points on fears of ‘drastic’ rate hikes
Overnight, U.S. stocks plunged as Wall Street investors grew increasingly nervous about even tougher medicine from the Fed to dampen inflation.
The Dow sank 876 points or 2.8 percent.
The Nasdaq is down 4.7% and has fallen more than 10% in the past two trading sessions.
The broader S&P 500 fell 3.9%.
This index is now more than 20% below its all-time high reached in January, putting stocks in a bear market.
Recession fears rose after Friday’s dismal consumer price index report showed inflation in the United States was significantly higher than economists had forecast last month.
This could make the Federal Reserve’s inflation control efforts more difficult.
After raising rates by half a point in May – a step the Fed had not taken since 2000 – Chairman Jerome Powell promised the same until the central bank was convinced that inflation was under control.
At that point, the Fed would resume standard quarter-point hikes, he said.
But after May’s hotter-than-expected inflation report, Wall Street is increasingly calling for tougher action from the Fed to keep prices in check.
Jefferies joined Barclays on Monday in predicting the Federal Reserve would raise rates by three-quarters of a percentage point, a step the Fed has not taken since 1994.
“After holding their breath for nearly a week awaiting the US CPI report for May, investors exhaled in exasperation as inflation came in stronger than expected,” said Sam Stovall, chief investment strategist at CFRA, in a note to clients Monday morning.
Stovall said the risk of bigger upsides dragged markets lower on Monday.
Investors fear two outcomes, neither of which is good: higher rates mean higher borrowing costs for companies, which can erode their bottom line.
And overzealous action by the Fed could unwittingly push the U.S. economy into a recession, especially if companies start laying off workers and the scorching housing market crashes.
There are no signs that the jobs and housing markets are in danger of collapsing, although both are cooling somewhat.
Additional reporting provided by CNN.
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