Shares tumble ahead of Federal Reserve interest rate call

The share market shedded 1.3 per cent as investors awaited the Federal Reserve’s much anticipated meeting on Thursday for a signal on its interest rate path.

The share market dived 1.3 per cent to mark the start of a shortened trading week. Picture: NewsWire / Gaye Gerard

The Australian share market tumbled on Tuesday to mark the start of a shortened trading week, as investors awaited the Federal Reserve’s much anticipated meeting later this week for a signal on its interest rate path.

At the closing bell, the S&P200 slumped 1.3 per cent, or 104.6 points, to 7755.4, its worst result since April as 10 of 11 industry sectors finished in the red.

Meanwhile the broader All Ordinaries slipped a similar amount to 8005.9.

Against the greenback, the Australian dollar inched lower through the session to buy US66.07c at 5pm.

In a quiet day of trading on Wall Street overnight, the benchmark S&P500 and the tech-heavy Nasdaq composite both climbed 0.3 per cent, while the Dow Jones edged up 0.2 per cent.

Shares skidded lower on Tuesday with 10 of 11 sectors finishing in the red. Picture: NewsWire / Gaye Gerard

Bond yields also inched higher, with the yield on the benchmark US 10-year Treasury jumping 10 basis points to 4.34 per cent.

Describing the ASX’s performance as a “catch-down” following Monday’s public holiday, KCM Trade chief market analyst Tim Waterer said investors were closely monitoring the Fed’s decision, alongside fresh US inflation data and local jobs data to come later this week.

“Traders were reluctant to take on risk ahead of those key events still to come,” Mr Waterer said.

“Where metrics stand at the moment we have core CPI moving higher, a tight jobs market, a hot housing market … traders are looking at those and seeing things aren’t looking particularly rosy for an RBA rate cut at the moment.”

On the local benchmark, mining stocks were the worst performers, plunging 2.6 per cent in the worst sell-off since September, as iron ore futures on the Singapore exchange skidded 2.2 per cent to $103.75 a tonne on a weaker outlook for Chinese demand.

Heavyweight miners for key steelmaking ingredient tracked the decline in the futures price with BHP off 1.8 per cent to $43.74, Fortescue down 3.2 per cent to $23.60 and Rio Tinto 1.9 per cent lower to $122.91.

Australian gold stocks also slumped, with the subindex for the precious metal down 5.5 per cent – its worst intraday result since September 2022 – on weak bullion prices. Northern Star Resources fell 5.1 per cent to $13.82 while Evolution Mining dropped 6.5 per cent to $3.76.

Chalice Mining was the worst performer on the index, off 9.8 per cent to $1.48.

“Obviously the stronger US jobs figures on Friday sent the US dollar and Treasury yields higher, and gold went in the opposite direction,” Mr Waterer added.

Investors are closely monitoring the post-meeting forecasts of FOMC members for signals on the path of rate cuts. Picture: Supplied.

Indeed, following the firmer-than-expected jobs print, traders trimmed their rate cut bets to ascribe a 50 per cent chance of a rate cut by the Federal Reserve in September, previously 70 per cent odds of easing had been priced in.

Locally, interest rate futures imply a near 30 per cent chance that the RBA will cut interest rates by year’s end, and are fully priced for a rate cut by July next year.

Economists at ANZ on Tuesday jettisoned their rate cut forecasts, with the bank’s head of Australian economics Adam Boyton tipping the RBA will ease interest rates at its first meeting of 2025 in February, a three month delay on his previous November call.

“It’s not that monetary policy isn’t working. It is,” Mt Boyton wrote in a note to clients.

“However, getting an appropriate balance between the level of demand and supply is likely to take a little longer than expected.”

In corporate news, automotive parts retailer Bapcor surged 14 per cent to $4.97 to be the index’s top gainer after the company received an unsolicited buyout offer from Bain Capital in a deal that values its equity at $1.8bn.

Shares in Strike Energy rocketed 13.2 per cent to 22c after The Australian reported mining magnate Gina Rinehart’s Hancock Prospecting was eyeing a potential takeover of the company.

AGL Energy slumped 1.7 per cent to $10.31 after it unveiled it would spend $150 million to acquire a 20 per cent stake in electricity billing and supply platform Kaluza, owned by Ovo Energy.