ASX sheds $50bn as traders prepare for higher rates

The ASX shed $50 billion after higher than expected inflation data rattled the market and investors braced for a higher interest rate environment.

The benchmark S&P/ASX 200 dropped as much as 3.1 percent before ending the session 2.5 per cent lower at 6950 points – the first close below 7000 points since May 2021.

Forecasters scrambled to bring forward their interest rate expectations, while traders dumped stocks across all sectors. Equities do poorly when rates rise because it increases borrowing costs and inflation increases input costs such as labour and materials.

Wall Street delivered volatile but slightly positive leads, but negative futures weighed on the ASX during Australian trading hours. The volatility index has returned to seven-week highs of 29.9 points.

ASX trading volumes were high, with over 1 billion shares traded, as blue chip banking and mining stocks slumped. ANZ fell 3.6 per cent, Westpac dropped 2.8 per cent, and Commonwealth Bank shed 2 per cent.

BHP declined by 1.3 per cent and Fortescue Metals fell 5 per cent after a trading update. Telstra dropped 3 per cent, and oil producers Santos and Woodside fell 4.8 per cent and 4 per cent respectively.

“I actually think we are going to see much higher volatility than everyone thinks,” said Novus Capital’s Gary Glover.

“It is probably going to be tough for the next two quarters. It’s a real trader’s market. I don’t think it’s an investor’s market; the buy-and-hold is not going to work here.”

Annual inflation beat expectations at 3.5 per cent for the October to December quarter – the third quarter in a row it has been above the Reserve Bank of Australia’s (RBA) target range of between 2 and 3 per cent.