Australian shares log the worst day in two weeks on rate hike fears

AUSTRALIAN shares slumped on Thursday (Jul 6), dragged down by heavyweight mining and financial stocks, as the US Federal Reserve’s hawkish outlook on interest rates dented sentiment.

The S&P/ASX 200 index ended 1.2 per cent lower at 7,163.4 points, in its worst session since June 23.

The minutes of the Fed’s policy meeting in June showed that while almost all officials agreed to hold rates steady, the vast majority foresaw the need to eventually tighten further.

The Reserve Bank of Australia is likely to hike rates by 25 basis points on Aug 1, following a pause in its previous meeting, a snap Reuters poll showed. But economists were split on when and where the cost of borrowing would peak.

With refreshed RBA forecasts due next month, inflation and labour market updates still highlighting the risk of higher inflation, the case for an August rate hike is strong, Matthew Hassan, a senior economist at Westpac, said in a note.

Australian miners slipped 2.0 per cent as iron ore prices fell after China’s top steel-producing city of Tangshan ordered an output cut for July.

BHP Group and Rio Tinto dropped 2.3 per cent and 1.4 per cent, respectively.

Financials retreated 1.5 per cent, with the “Big Four” banks falling between 1.3 per cent and 2.1 per cent.

Weak oil prices weighed on energy stocks, which slid 1.2 per cent.

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Among individual stocks, baby formula maker Bubs Australia dropped 2.2 per cent on plans to reduce operating expenses and cash burn.

New Zealand’s benchmark S&P/NZX 50 index closed 0.4 per cent lower at 11,959.330 points.

The Reserve Bank of New Zealand is scheduled to review its monetary policy next week, with UBS expecting the central bank to keep the cash rate on hold in 2023, at a peak of 5.5 per cent.

“We think the bar for the RBNZ to turn hawkish again, and effectively re-start their hiking cycle, is high.” REUTERS