Australian share market suffers worse dive since early 2020 as inflation scares investors

The Australian share market has suffered its worst dive since March 2020 as the steepest American inflation in four decades spooks investors.

The benchmark S&P/ASX200 was down 5.3 per cent in early trade with more than $110 billion wiped off stocks. 

The plunge followed a bad session on Wall Street amid fears an American inflation rate of 8.6 per cent in May, the highest since 1981, would see the US Federal Reserve raise interest rates.

Banks are being hit badly with the Commonwealth Bank down 5.45 per cent in early trade to $88.67. 

Mining giant BHP was down 5.71 per cent to $43.58 as Rio Tinto fell 5.72 per cent to $109.27, with resources stocks a barometer of global growth.

Buy now, pay later app Zip Co plummeted 19 per cent to 51 cents.

Tiger Brokers chief strategy officer Michael McCarthy said the highest US inflation in 41 years had caused a sell-off in shares, after American Labour Department data showed energy prices surging at an annual pace of 34 per cent.

‘It was expected to fall in May, instead it’s accelerated further and that means that the US Federal Reserve will be likely to stomp on the brakes a lot harder than markets were expecting,’ he told Daily Mail Australia.

‘The inflation that we’re seeing in the US is being replicated around the world: that means it’s very unlikely any central bank’s will be stepping up to help.

‘They’ll be lifting rates and withdrawing stimulus and that’s bad news for prices everywhere.’ 

Mr McCarthy said Tuesday’s plunge was the worst since March 2020, when the World Health Organisation declared a Covid pandemic and a national lockdown was imposed in Australia.

‘They’ve got a very similar feel to that big sell down that we saw in March of 2020 and yes, this is the worst trading day that we’ve seen since then,’ he said.

Australia’s share market dive was even worse the 3.9 per cent drop in Wall Street’s benchmark S&P500 index. 

Inflation data out of China, Australia’s biggest trading partner, also showed a 6.4 per cent jump in producer prices, almost tripled the May inflation reading of 2.1 per cent. 

Since June 10, the price of Bitcoin in Australian dollars has plunged from $42,372 to $30,512 – a 28 per cent plunge in five days.

‘The share market is down hard but we’re also see extreme pressure on crypto prices,’ Mr McCarthy said.

‘Bitcoin is now trading at below one third its value from just eight months ago.’

Global credit ratings agency Fitch Ratings has reduced its forecasts for global growth, expecting a subdued world pace of 2.9 per cent in 2022.

As recently as March, it was forecasting a 3.5 per cent expansion.