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The Australian market is slumping by almost 3 per cent at lunch; the worst day for local equities in 20 months following a massive tumble for US shares overnight which takes the ASX 200 to a three and a half month low.
Last night, American markets fell by ~4.5 per cent; the biggest daily pullback in six and a half years. While this is a correction, it has to be put into perspective as it is human nature to focus on the falls rather than gains. US stocks are only down ~1.5 per cent in 2018 and are only at their lowest levels since Dec 2017. While the market might look ugly this week, in a little over 12 months the Dow Jones hit record highs on ~100 sessions.
A catalyst for the selling was a US jobs report on Friday which was better than expected and highlighted greater wages growth than anticipated by most economists. The theory is that companies could pass on the expense of higher wages to their customers and feed inflation. Bond yields in the US have hit fouryear highs while the US dollar has also strengthened.
Locally, all sectors are coming under substantial pressure with all stocks on the ASX 200 index (with the exception of gold stocks) slumping. Energy stocks are the worst performers, dropping by 4 per cent with Woodside (WPL) and Santos (STO) leading the falls. Tech stocks, retailers and healthcare are down by ~3 per cent.
Macquarie (MQG) is down by ~5 per cent despite raising its profit guidance for the year. Fund manager Magellan (MFG) is slumping by almost 6 per cent with the market unimpressed by a 38 per cent slide in net profit (although underlying earnings rose by 25 per cent).
Wesfarmers (WES) is down by an additional 2.9 per cent due to a number of price target cuts by brokers. This comes a day after the company behind Coles and Bunnings warned of ~$1.2bn in impairment charges/write-downs.
Retail sales eased by 0.5 per cent in December (consensus -0.2 per cent) and confirms the weakness in spending over Christmas following sluggish updates from Myer (MYR) and David Jones recently.
The Reserve Bank (RBA) will almost certainly keep rates on hold this afternoon at 2.30pm AEDT. Economists will be paying close attention to the accompanying one-page statement by the central bank and comments about the Aussie dollar and wages growth.
3bn shares have changed hands so far today, worth $4bn. 103 stocks are up, 1276 are down and 217 are flat.
Originally published by CommSec