Financials plummet and ASX200 follows
In afternoon trade, our local index is sharply lower, down circa 80 points, as sentiment sours.
The financial sector is the weakest link today, losing 1.7%, as investors consider a changing interest rate outlook in Australia. With recent domestic economic data surprising to the upside, and the mini revival in the price of iron ore, the probability of an interest rate cut next month has diminished to now be less than fifty fifty. Consequently, this takes the gloss of the yield play as valuations start look a little stretched, and banks and insurers are feeling the pinch.
Elsewhere, the materials sector is also notably lower, although the heavy weights in BHP and RIO are faring better than most. FMG has shed in excess of 5%, despite a firmer iron ore price overnight, possibly down to profit taking.
The Aussie dollar has been the big news story overnight, climbing back to 80 US cents for the first time since January, as the USD weakened across the board.
Traders looking for direction will look no further than tonight’s US first quarter GDP data and tomorrow morning’s FOMC statement. These events could potentially confirm a soft run of US data, and continue the greenback’s recent wane. Conversely, if there’s a surprise to the upside, the Fed’s first rate raise may be back on the cards.
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Frequently Asked Questions about this Article…
The ASX200 dropped sharply today, down around 80 points, primarily due to a decline in the financial sector. Investors are reacting to a changing interest rate outlook in Australia, which has affected sentiment negatively.
The financial sector is struggling because the probability of an interest rate cut next month has decreased. This has made yield plays less attractive, causing banks and insurers to feel the pressure as valuations appear stretched.
The materials sector is also experiencing a downturn, although major companies like BHP and RIO are performing better than others. FMG, however, has seen a significant drop of over 5%, possibly due to profit-taking despite a rise in iron ore prices.
The Aussie dollar climbing to 80 US cents is significant as it marks the first time since January that it has reached this level. This rise is attributed to a weakening US dollar across the board.
Traders are looking towards the US first quarter GDP data and the FOMC statement for direction. These events could either confirm a soft run of US data, continuing the US dollar's decline, or surprise to the upside, potentially bringing a Fed rate hike back into consideration.
The probability of an interest rate cut in Australia is decreasing due to recent domestic economic data that has been surprisingly positive, along with a mini revival in iron ore prices. This has reduced the likelihood of a rate cut to less than fifty-fifty.
BHP and RIO are faring better than most other companies in the materials sector, which is generally experiencing a downturn today.
Investors should watch for the US first quarter GDP data and the FOMC statement. These releases could provide insights into the US economic outlook and influence the direction of the US dollar and potential interest rate changes.
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