ASX plunges as Wall Street tanks after Jerome Powell's hawkish comments on US monetary policy

Australian shares have opened sharply lower as risk appetite declined on the back of a negative finish in US stocks on Friday after Federal Reserve Chair Jerome Powell reiterated a hawkish tone to battling inflation.

The ASX 200 was down 134 points or 1.9 per cent to 6,970, by 10:27am AEST.

At the same time, the Australian dollar was down at 68.70 US cents.

All 11 sectors were lower, with utilities and consumer non-cyclicals leading the losses.

Pinnacle (-8.8pc), Life360 (-8.7pc) and Coronado Global Resources (-7.9pc) were among the worst performers at open.

US stocks sell off after Powell comments

An index of global stock markets fell, while short-term US Treasury yields rose on Friday, after Mr Powell said the US economy will need tight monetary policy “for some time” before inflation is under control.

The dollar erased early losses to turn positive against a basket of currencies, while gold, which loses appeal as interest rates rise, fell after Mr Powell’s comments.

Tight monetary policy “for some time” means slower growth, a weaker job market and “some pain” for households and businesses, Mr Powell said in a speech to the central banking conference in Jackson Hole, Wyoming.

“Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labour market conditions,” Mr Powell said.

He did not hint at what the Fed might do at its upcoming September 20-21 policy meeting. Officials are expected to approve either a 50- or 75-basis-point rate increase.

Interest rate futures tied to expectations about Fed policy fell on Friday moments after Mr Powell’s speech, reflecting increased chances of a third straight 75-basis-point rate hike.

“It was hawkish as expected. Powell’s message is clear: the Fed is far from done in its fight against inflation,” said Antoine Bouvet, senior rates strategist at ING in London.

MSCI’s gauge of stocks across the globe shed 2.5 per cent, its worst day in more than two months.

Wall Street’s main indexes fell, with Mr Powell’s comments dragging down mega-cap growth and technology stocks.

“His comments were hawkish. He’s keeping the pedal to the metal here when it comes to policy to fight inflation,” said Lindsey Bell, chief money and markets strategist at Ally.

The Dow Jones Industrial Average fell 1,008 points, or 3 per cent, to close at 32,283, the S&P 500 lost 141 points, or 3.4 per cent, to finish at 4,058 and the Nasdaq Composite dropped 498 points, or 3.9 per cent, to end the session at 12,142.

European stocks slid

Meanwhile, investors also fretted over downbeat German consumer sentiment data due to rising energy costs.

Consumer morale in the euro zone’s two biggest economies diverged starkly in August as French consumers benefited from fresh government measures while concerns over rising energy bills hit their German counterparts, surveys showed on Friday.

The pan-European STOXX 600 index lost 1.7 per cent.

Oil prices ended higher on Friday, boosted by signals from Saudi Arabia that OPEC could cut output, but trading was volatile as investors digested and ultimately shrugged off the Fed’s warning on economic pain ahead.

Brent crude oil was down, trading at $US100.07 a barrel, by 10:14am AEST.

ABC/Reuters

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