Stocks slide as US rate rise talk shakes markets

The local sharemarket fell sharply yesterday in a global stock retreat amid concerns about tighter monetary policy.

Friday’s stock price falls in the US has taken its toll on global markets, including Australia’s.

The Australian sharemarket has endured its fiercest sell-off since the shock Brexit vote in late June, with $34.5 billion sliced from valuations while traditional high-yield stocks, including banks, property trusts and Telstra, were dumped.

The benchmark S&P/ASX 200 Index yesterday had its fourth-worst session for the year, falling 2.24 per cent, or 119 points, to 5219.6 points — its lowest level in nine weeks — as stocks across Asia tumbled.

The selldown spread as markets fretted about the rising prospect of a US rate increase this year and the diminished ability of central banks to prop up markets.

Unusually, bond markets were also sold off in line with shares — including Australian 10-year bonds — exposing investors in these traditional safe havens to greater volatility.

Japan’s benchmark Nikkei share index surrendered 1.7 per cent, while Hong Kong’s Hang Seng skidded 3.3 per cent.

The selldown added to an ­already bearish mood with the S&P/ASX 200 having lost $64bn in less than three weeks as investors grapple with the prospect that the US Federal Reserve will push ahead with tighter monetary policy sooner than expected.

Over the past three weeks, the local sharemarket has slumped 6 per cent and at the heart of the retreat have been some of the nation’s biggest names — Telstra and Commonwealth Bank.

During the session yesterday CBA touched a three-year low, falling briefly below $70 before clawing back some ground to settle at a six-month low, while Telstra ended under $5 for the first time since 2014.

Commentary from several Fed members has lifted expectations of a rate rise from a 52 per cent chance to a 60 per cent probability over the past two trading days, leading to a heavy bid on the US dollar, the shunning of high-yield stocks and softness in commodity prices.

“In the back of investors’ minds there’s this fear central banks are getting closer to reaching the limits of what they can do, and that’s forcing people to think about where asset prices should be in a world where central banks don’t just constantly expand their balance sheets,” JPMorgan chief economist Sally Auld said.

Ms Auld said “benign” trading conditions had exacerbated the recent “kneejerk moves”.

Speeches from a number of the Fed’s representatives this week will be carefully scrutinised, but in the meantime investors are taking risk off the table.

An ominous combination of weakness in both fixed interest and equity markets has peaked market concerns, but the problem is not isolated.

“Our market is getting caught up in the global move — I don’t think there’s anything specific to the Australia story that’s worrying markets, but we will be dragged with global markets in these sorts of events,” Ms Auld said.

Australian bond markets plunged in line with the sharemarket, with the 10-year bond’s yield breaking out of its 1.8-2 per cent range to hover around 2.11 per cent, a post-Brexit peak.

Ms Auld noted that bond markets and sharemarkets were rarely hit at the same time, although they had largely moved in lock-step this year.

Credit Suisse equity strategist Hasan Tevfik said the sudden uptick in yields had caught traders off-guard and was stirring unease. “The bond market is certainly terrifying investors, especially those shareholders in highly leveraged companies or stocks that have benefited most from lower discount rates,” he said.

Futures markets are now pricing in a much lower expectation of another rate cut in Australia this year, with the US Fed potentially doing the heavy lifting for the RBA in bringing the local currency down.

Since the last RBA meeting a week ago, the implied probability of a rate cut has fallen from 39 per cent to 32 per cent, while the Australian dollar has lost more than US1c over the same period. Last night the dollar was trading at US75.26c.

Resources stocks drew the sharpest sell-off yesterday.

Miners BHP Billiton and Fortescue Metals wilted 4 per cent and 5 per cent, respectively, while big energy names such as Santos, Origin and Woodside stumbled 2.5-5 per cent.