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.