Australian shares have dropped in morning trade, as ongoing economic uncertainty and flaring US-China tensions weighed on global market sentiment.
The arrival of US House of Representatives Speaker Nancy Pelosi in Taipei, despite warnings from Beijing, prompted China to launch war planes and buzz the Taiwan Strait in protest.
The ASX 200 dropped by a steeper-than-expected 1.1 per cent, to 6,921 points, by 10:50am AEST.
Nearly every sector traded lower, with utilities and materials suffering the biggest losses. Seven out of every 10 stocks were in the red.
Some of today’s worst performers include Champion Iron (-5.3pc), APA Group (-3.2pc), Seven Group (-3.2pc) and Eagers Automotive (-3.2pc).
On the flip side, some of the best performing stocks were Pinnacle Investment Mangement (+10.7pc), Block (+4.9pc), and Lynas Rare Earths (+4.6pc).
Aussie dollar sinks
The Australian dollar fell 0.4 per cent, to 68.9 US cents. That was on top of its sharp loss of 1.5 per cent overnight.
The sell-off began yesterday, when the Reserve Bank lifted its cash rate target by 0.5 percentage points, which takes the new rate to a six-year high of 1.85 per cent.
RBA governor Philip Lowe said it was a “high priority” for the bank to bring inflation down from its 30-year high, in yesterday’s post-meeting statement.
But he added that “the size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labor market”.
It appears money markets saw that as a sign the RBA may slow down its pace of rate hikes in the near future.
The weaker Australian dollar was also driven by a stronger US greenback as investors piled into currencies that are seen as “safe havens”.
In that regard, the Japanese yen jumped 0.9 per cent against the greenback, and was on track for a fifth day of gains, its longest winning streak since 2020.
“There is the uncertainty surrounding Pelosi’s trip to Taiwan and there’s additional data, regarding economic softness,” said Sam Stovall, chief investment strategist of CFRA Research.
“Regarding recession [in the United States]it’s not a question of ‘if’ but ‘when’ and how deep.”
‘An open question’ about further rate hikes
On Wall Street, the S&P 500 slipped by 0.7 per cent, to end the session at 4,091 points.
The Nasdaq declined 0.2 per cent, to 12,349, while the Dow Jones index fell 1.2 per cent, to 32,396.
On the economic front, a report from the Labor Department showed job openings in the United States dropped by 5.4 per cent in June, a sign that the job market is weakening amid softening demand.
Since the US Federal Reserve raised interest rates by 0.75 percentage points in July, investors have been speculating about whether the central bank’s largest hikes are already behind it.
“The market has to get really comfortable that they have fully baked in all the Fed’s rate hikes, and I think that remains an open question,” said Rob Haworth, senior investment strategist at US Bank Wealth Management in Seattle.
“The challenges and supply constraints aren’t necessarily done. They aren’t done and gone yet.”
Oil prices slipped ahead of the OPEC+ meeting of oil producers expected this week, the outcome of which could mean a boost to global crude supply, while lingering recession fears helped cap those gains.
Brent crude futures fell 0.4 per cent, to $US99.63 a barrel.
Spot gold dropped 0.7 per cent, to $1,760.24 an ounce.