ASX set to edge lower as global rate rises hit Wall Street

By Damian Troise and Alex Veiga

Stocks fell on Wall Street in afternoon trading on Thursday and added to weekly losses for major indexes as central banks around the world hiked interest rates to fight inflation.

The S&P 500 is 0.6 per cent lower in late trade, while the Dow Jones has added 0.2 per cent and the Nasdaq has shed 1 per cent. Every major index is solidly on track for weekly losses. The Australian sharemarket is set to open lower, with futures at 5.01am AEST pointing to a fall of 9 points, or 0.1 per cent, at the open. On Thursday, the ASX tumbled by 1.6 per cent.

Wall Street’s benchmark index has lost more ground on Thursday.
Wall Street’s benchmark index has lost more ground on Thursday.Credit:NYSE

Wall Street’s losses were broad and led by retailers, technology stocks and industrial companies. Starbucks fell 4.6 per cent, Apple dropped 0.9 per cent and UPS slid 3 per cent.

Smaller company stocks fell more than the broader market in a sign that investors were worried about the economy. The Russell 2000 fell 2.1 per cent.

Bond yields rose. The yield on the 2-year Treasury, which tends to follow expectations for Fed action, rose significantly to 4.12 per cent from 4.02 per cent late Wednesday. It is trading at its highest level since 2007. The yield on the 10-year Treasury, which influences mortgage rates, jumped to 3.69 per cent from 3.51 per cent from late Wednesday.

Investors are worried that the Fed could get even more aggressive on interest rates, but if prices stabilise that won’t need to happen, said Barry Bannister, chief equity strategist at Stifel. It could take more than a year for that process to play out, he said.

“The question is, what’s the patience level for both the Fed and the market,” he said.

Central banks in Europe and Asia raised interest rates a day after the Federal Reserve made another big rate hike and signalled that more were on the way.


Britain’s central bank raised its key interest rate by another half-percentage point. Switzerland’s central bank raised its benchmark lending rate by its biggest margin to date, 0.75 percentage points, and said it couldn’t rule out more hikes. Central banks in Norway and the Philippines also raised interest rates.

The Fed and other central banks are raising interest rates in to make borrowing more expensive. The goal is to slow economic growth enough to tame inflation, but not so much that economies slip into a recession. Wall Street is worried that the Fed may be pumping the brakes too hard on an already slowing economy, which makes steering into a recession more likely.

On Wednesday, Fed chair Jerome Powell stressed his resolve to lift rates high enough to drive inflation back toward the central bank’s 2 per cent goal. Powell said the Fed has just started to get to that level with this most recent increase. The U.S. central bank lifted its benchmark rate, which affects many consumer and business loans, to a range of 3 per cent to 3.25 per cent. That is the fifth rate hike this year and up from zero at the start of the year.

The Fed also released a forecast known as a “dot plot” that showed it expects its benchmark rate to be 4.4 per cent by year’s end, a full point higher than envisioned in June.

Companies are closing in on the end of the third quarter and preparing for the next big round of earnings reports, though some early reports have trickled out. Homebuilder Lennar rose 2.6 per cent after reporting strong financial results for its fiscal third-quarter. Fellow homebuilder KB Home fell 4 per cent after a warning about supply chain problems and a mixed financial report.


The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.

Most Viewed in Business

Source: Thanks