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Australia Stocks Slump Most Since 2020 on Inflation, Fed Worries

·1 min read

(Bloomberg) -- Australia’s key stock index tumbled the most in more than two years, joining a global selloff on growing bets for sharper Federal Reserve interest-rate hikes to fight inflation.

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The S&P/ASX 200 Index closed down 3.6% on Tuesday as trading resumed after a holiday. The move comes after US stocks hurtled into a bear market and global bonds plunged on Monday as inflation and recession fears rattled investors.

Meanwhile, New Zealand equities entered a technical bear market after finishing the session 2.6% lower. The S&P/NZX 50 Gross Index has shed more than 20% from its January 2021 peak.

Australian stocks are down about 12% from a recent high in late April. The country’s sovereign bonds also tumbled, following Treasuries, as traders priced in expectations for faster Fed hikes after data last week showed US consumer prices unexpectedly accelerated in May.

“Caution is thick in the air. The inflation picture is getting worse and is going to worsen,” said Saxo Capital Markets Australia market strategist Jessica Amir. “We remain really defensive here, expecting sharper pull backs in equities as market shocks will likely continue.”

Benchmark Australian 10-year yields rose 28 basis points to 3.96%, paring an earlier gain of as much as 34 basis points. Rate sensitive three year yields rose as much as 42 basis points to 3.54%.

“On the other hand we have economic health conditions getting stronger, and unemployment data this week to probably hit another month record low,” said Amir. “Both of these core components gives the RBA ammo to hike rates more than expected.”

(Updates with closing prices)

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