Banks drag ASX lower after Wall Street collapse

Utilities (up 0.8 percent) were the only sector in the green, while Origin Energy climbed 2.5 percent. Resource companies such as Northern Star (up 1.7 percent) and Evolution Mining (up 1.1 percent) and telecom company TPG (up 2.1 percent) also bucked the downtrend.

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Wall Street stocks fell overnight, contributing to weekly losses as markets remain concerned about the prospect of more aggressive action by the US Federal Reserve to fight inflation.

The S&P 500 closed 1.9 percent lower, the Dow Jones fell 1.7 percent and the Nasdaq fell 2.1 percent.

The sharp fall in the US follows a two-day testimony before Congress by Fed Chair Jerome Powell, who said the central bank stands ready to continue making large rate hikes if needed. Fears of an ongoing aggressive Fed have weighed on key indices.

The Fed’s anti-inflationary policies risk slowing the economy too much and pushing it into recession, while going too far by weakening a strong labor market and putting many people out of work.

A government report on Thursday highlighted that the number of Americans who filed for unemployment benefits last week rose by the most in five months, but layoffs remained at historically low levels.

Two-year Treasury bond yields, which tend to follow expectations for future Fed action, fell to 4.87 percent from about 5.05 percent just before the unemployment report was released. It has hovered at the highest level since 2007.

The unemployment data follows a report on Wednesday that showed the number of job vacancies posted across the country last month was higher than economists had expected. The US government’s broader recruitment report is scheduled for Friday.

A big concern in Fed and Wall Street unemployment data is the pace of wage growth. Strong wage increases are good for workers struggling with high inflation, but they could also push inflation higher and make it harder for the central bank to fight high prices.

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“It makes people think about what a persistently tight labor market means for economic growth and the inflationary environment,” said Keith Buchanan, portfolio manager at Globalt Investments.

Wall Street has reviewed a slew of data that has highlighted both a resilient economy and stubborn inflation. More updates are coming next week when the government releases reports on inflation at both the consumer and wholesale levels along with retail sales data.

Traders are leaning towards the Fed raising its reference rate by 0.50 percentage point on March 22nd. They had expected the central bank to remain on hold for a smaller hike of 0.25 percentage point ahead of Powell’s testimony this week, according to data from CME Group.

“At the back of investors’ minds was the idea that the worst part of the tightening cycle is seeping into the rearview mirror and it would take a lot to accelerate the tightening again,” Buchanan said. “[Powell] put the reacceleration back on the table.”

The Fed’s goal is to bring inflation down to 2 percent. That figure was 5.4 percent in January. The central bank has already raised its main overnight interest rate to a range of 4.5 percent to 4.75 percent from almost zero early last year, the fastest hikes in decades.

With AP

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