Invest
Aussie market falls on US inflation
The Australian sharemarket has fallen on the bell after Wall Street experienced sharp sell-offs overnight due to hotter than expected inflation data.
Aussie market falls on US inflation
The Australian sharemarket has fallen on the bell after Wall Street experienced sharp sell-offs overnight due to hotter than expected inflation data.
Following the release of US inflationary figures, world markets took a dive, with the US S&P 500 closing 2.2 per cent lower, while the technology heavy Nasdaq, which is more sensitive to increases in inflation, fell by 2.7 per cent.
Meanwhile, the FTSE 100 also fell, closing at 6,939 after opening at 7,123.
Despite falls worldwide, Dr Shane Oliver opines Australia's market is likely to be insulated from heavy market falls due to having a less tech based stock market.
"The impact is likely to be less as our share market has not gone up as much, it’s cheaper, we have less tech stocks which are highly sensitive to higher inflation and bond yields, and Australian inflation is unlikely to rise as much as that in the US. So far so good, with the ASX 200 only down -0.4 per cent," Dr Oliver told nestegg.
While Australia’s market as a whole only fell by 0.40 per cent, ASX tech stocks bore the brunt of the falls.
Shares in Perenti Global is down 16.9 per cent, while Xero declined 10.1 per cent – albeit on earnings downgrades – and shares in Afterpay slid by 7.2 per cent.
The Australian dollar also fell overnight, albeit recovering slightly from losses with $1 now buying 77.28 US cents.
US inflation jumps
Off the back of government support, supply bottlenecks and increased spending as economic activity returns post-lockdowns, US inflation jumped to 4.2 per cent over its levels a year ago, a jump surprising leading economists.
Headline inflation jumped 0.8 per cent month-on-month versus the 0.2 per cent consensus while the core (food and energy) component rose 0.9 per cent versus the 0.3 per cent forecast.
“This is the highest headline month-on-month reading since September 2009 and the highest core reading since 1981. It leaves the annual rates of inflation at 4.2 per cent and 3 per cent, respectively,” ING’s chief international economist James Knightley said.
This isn’t the peak
Inflation is likely to head even higher over the next couple of months as price levels in a vibrant, strengthening economy that has supply constraints contrast starkly with those of 12 months ago when the economy was in lockdown and prices were being slashed in order to generate cash flow.
ING is now predicting headline CPI in May to be at 4.5 per cent and core at 3.3 per cent.
“Admittedly, the annual rates should start edging lower as we move through 3Q and the economic extreme of lockdown is no longer included in the calculation. Nonetheless, we are not as optimistic as the Federal Reserve in thinking this is purely ‘transitory’, and we will quickly be back down to 2 per cent and stay there,” Mr Knightley explained.
Should inflation worry investors?
While inflation is likely to persist both domestically and abroad due to massive government stimulus packages, Dr Oliver opines inflation concerns could be short lived.
"Viewed in a very long-term context, though we are likely now going through the bottoming of the long-term decline in inflation that has been in place since the early 1980s, a reversal in globalisation and a decline in workers relative to consumers results in higher inflation on a more sustained basis," Dr Oliver explained to nestegg.
"This is ultimately what central banks are aiming for. In this context the spike in inflation now occurring is likely part of a long-term or secular bottoming process for inflation and bond yields. This will take several years to play out and the question is whether it results in inflation ultimately averaging around target or something higher. Our base case is the former, although the risks are possibly swinging to the latter."
About the author
About the author
Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more
Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more
Stock market
The 6 unique Australian market affects that all active managers can exploit
The uniqueness of the Australian equities market is providing fund managers with an opportunity to essentially beat the market, new research has revealed. ...Read more
Stock market
‘Don’t believe the hype’: ASIC warns of risks for new market participants
ASIC has expressed concern that inexperienced or uninformed investors are putting their capital at unnecessary risk when tempted into the market by questionable marketing strategies from market promot...Read more
Stock market
How do you choose the best ETFs?
In recent years, exchange-traded funds have become an increasingly popular option among Aussie investors. ...Read more
Stock market
Lockdowns instigate a rise in new investors
Despite COVID-19 leaving individuals and businesses to face an uncertain future, retail investors’ appetites for shares have increased throughout the pandemic, a new report has found. ...Read more
Stock market
‘Code red for humanity’ a wake-up call for private and public investment
Retail investors that have been advocating for sustainable and ESG investing are hoping a new report released by the United Nations will serve as a wake-up call to the financial industry and governmen...Read more
Stock market
Rising inflation set to help the next super cycle for investors
Central banks around the world are largely tipped to increase interest rates over the medium term due to inflationary pressures, with investors urged to look at the upcoming growth cycles that will em...Read more
What to expect as the end of lockdown looms? Will the Stage 2 tax cuts boost your tax return? Where should investors be looking as the economy reopens?
Listen now
Could property prices inflate by another 20%? What’s happening in recent dividend announcements? Did your fund fail the YFYS test?
Listen now
What does the NSW regional permit mean for property investors? Who really wins from the BHP-Woodside merger?
Listen now
The sea and tree-change norm; Square’s acquisition of Afterpay; Why you should think twice before turning to TikTok for advice
Listen now
Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more
Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more
Stock market
The 6 unique Australian market affects that all active managers can exploit
The uniqueness of the Australian equities market is providing fund managers with an opportunity to essentially beat the market, new research has revealed. ...Read more
Stock market
‘Don’t believe the hype’: ASIC warns of risks for new market participants
ASIC has expressed concern that inexperienced or uninformed investors are putting their capital at unnecessary risk when tempted into the market by questionable marketing strategies from market promot...Read more
Stock market
How do you choose the best ETFs?
In recent years, exchange-traded funds have become an increasingly popular option among Aussie investors. ...Read more
Stock market
Lockdowns instigate a rise in new investors
Despite COVID-19 leaving individuals and businesses to face an uncertain future, retail investors’ appetites for shares have increased throughout the pandemic, a new report has found. ...Read more
Stock market
‘Code red for humanity’ a wake-up call for private and public investment
Retail investors that have been advocating for sustainable and ESG investing are hoping a new report released by the United Nations will serve as a wake-up call to the financial industry and governmen...Read more
Stock market
Rising inflation set to help the next super cycle for investors
Central banks around the world are largely tipped to increase interest rates over the medium term due to inflationary pressures, with investors urged to look at the upcoming growth cycles that will em...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
