Australian share market plunges 2% after US Fed hikes rates by 0.75 percentage points

The Australian share market has plunged by more than $55billion after the US Federal Reserve sharply raised interest rates by 0.75 percentage points overnight to combat runaway inflation.

The benchmark S&P/ASX200 plummeted by 2.11 per cent in the first half hour of trade on Thursday, falling to 6,840.4 points.

The loses worsen to 2.2 per cent after the first hour, wiping off $57billion from the market. 

Mining giant BHP plunged 3.19 per cent to $37.99 as the Commonwealth Bank fell 1.41 per cent to $104.48.

The Australian Securities Exchange has done even worse, so far, than the American Dow Jones Industrial Average which finished 1.55 per cent weaker. 

The Australian share market has plunged after the US Federal Reserve raised interest rates by 0.75 percentage points (pictured is the Australian Securities Exchange in Sydney)

The Australian share market has plunged after the US Federal Reserve raised interest rates by 0.75 percentage points (pictured is the Australian Securities Exchange in Sydney)

Global share markets have tumbled after the US Federal Reserve raised the federal funds rate by 75 basis points overnight to a 14-year high of 3.75 per cent to 4 per cent.

CommSec market analyst Steven Daghlian said that while the market was expecting a big 0.75 percentage point rate hike, US Fed chairman Jerome Powell’s declaration that it was premature to pause rate increases sparked a sell-off

The latest American rate rise was triple the Reserve Bank of Australia’s 25 basis point increase on November 1 that took the cash rate to a nine-year high of 2.85 per cent, and indicated further rate rises were on their way here, and in the US.

CommSec market analyst Steven Daghlian said that while the market was expecting a big 0.75 percentage point rate hike, US Fed chairman Jerome Powell’s declaration that it was premature to pause rate increases sparked a sell-off.

‘Markets did reasonably well after the decision was handed down because it seemed like, or at least there was a small hint, that there might be smaller rate hikes ahead but then the Fed boss, when he delivered that presser half an hour later, that changed things,’ Mr Daghlian told Daily Mail Australia. 

‘He basically talked down the idea that rates might be close to peaking and he warned if anything that interest rates will need to move higher than previously thought and it’s very premature to be thinking about pausing rate hikes.’ 

Global share markets have tumbled after the US Federal Reserve raised the federal funds rate by 75 basis points overnight to a 14-year high of 3.75 per cent to 4 per cent (pictured is a New York Stock Exchange trader on November 2 as US Federal Reserve chairman Jerome Powell announces an increase in interest rates)

The US Fed’s Federal Open Market Committee declared it was ‘highly attentive to inflation risks’ as it opted for a 75 basis point hike for the fourth straight meeting in November, following on from the June, July and September increases.

The FOMC statement issued on Wednesday night, Australian time, mentioned the word ‘inflation’ nine times.

‘Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,’ it said.

‘Russia’s war against Ukraine is causing tremendous human and economic hardship. 

‘The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity.’

The US inflation rate of 8.2 per cent in September was near a four-decade high while the equivalent level in Australia of 7.3 per cent was the highest in 32 years. 

The US Fed has eight meetings a year compared with the Reserve Bank of Australia’s 11 monthly meetings. 

Westpac senior economist Elliot Clarke said the US Fed hinted there were more interest rate rises to come, after Mr Powell expected inflation to remain high.

In his opening statement in Washington DC, US Federal Reserve chairman Jerome Powell said there were likely to be more interest rate increases

‘It was clear from the press conference that Chair Powell still sees inflation risks as biased to the upside, potentially creating need for the committee to continue raising at a slow pace towards the middle of 2023,’ Mr Clarke said.

In his opening statement in Washington DC, Mr Powell said there were likely to be more interest rate increases.

‘At some point, it will become appropriate to slow the pace of increases, as we approach the level of interest rates that will be sufficiently restrictive to bring inflation down to our two per cent goal,’ he said.

‘There is significant uncertainty around that level of interest rates.’

The US Fed’s 2 per cent inflation target is stricter than the RBA’s 2 to 3 per cent target. 

All sectors of the Australian market were weaker on Thursday after three straight days of gains. 

The mining sector was doing particularly badly, with the US Fed hike and fears of more to come stirring fears of a recession in the United States. 

Rio Tinto was down 2.57 per cent to $90.25 as iron ore miner Fortescue Metals Group dived 2.96 per cent to $15.26. 

‘The more aggressive interest rate hikes are, the more likely we are to see a recession in places like the United States and the more likely we are to see a slowdown in that global economy,’ Mr Daghlian said.

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