Banks boost ASX as miners slump; Unemployment hits five-year high

The Australian sharemarket has fallen in early trade after Wall Street dropped to its worst day since July following the latest signal that US inflation is getting worse.

The S&P/ASX 200 was 53.9 points, or 0.6 per cent lower, to 8674 in early trade. The ASX lost 0.6 per cent on Wednesday. The Australian dollar was weaker at US69.66¢.

The S&P 500 sank 1.1 per cent for a fifth loss in the six days since setting its all-time high. The Dow Jones Industrial Average fell 48 points, or 0.1 per cent, and the Nasdaq composite slid 1.9 per cent as stocks in the artificial-intelligence industry led the way lower.

Stocks felt pressure from rising yields in the bond market, where worries grew after a report said US consumers had to pay prices for fuel, food and other costs of living last month that were 3.7 per cent higher overall than a year earlier. That means inflation accelerated from its 3.4 per cent rate in August and was worse than the 3.6 per cent that economists expected.

Inflation has remained more painful than anyone would like since the economy catapulted out of the crevasse created by the COVID-19 pandemic. It’s accelerated recently in part because of jumps in fuel prices caused by the war with Iran, and the price for a barrel of Brent crude added 0.4 per cent Wednesday to $US106.06.

That has added to the longstanding worries about fast-rising debt loads for governments, signals that the US economy is still growing and other factors that have sent bond yields to their highest levels in years.

The centrepiece of the US bond market, the 10-year Treasury, saw its yield briefly jump above 5.32 per cent from less than 5.17 per cent just before the inflation report’s release. It eventually gave back much of the gain.

Yields on shorter-term Treasurys had even bigger leaps as traders raised their expectations for coming hikes to interest rates by the Federal Reserve, though they also moderated as the day progressed.

The Fed recently raised the interest rate that it controls, which affects very short-term loans, for the first time in three years in hopes of reining in inflation. Higher rates do that by making it more expensive for everyone to borrow money and slowing the overall economy.

Traders now see a nearly 35 per cent chance the Fed will raise the federal funds rate at its next meeting in two weeks, up from the 22 per cent probability seen a day earlier, according to data from CME Group.

Part of what’s keeping inflation high is that Americans overall are continuing to spend, which encourages businesses to keep raising prices for their products and services. As Americans become more “price-sensitive” and the economy also benefits from greater productivity by workers, Vanguard Senior Economist Adam Schickling said inflation should slow, but “patience will be required.”

Netflix added 0.2 per cent. The streaming giant announced plans to lay off about 6 per cent of its workforce, amounting to nearly 1000 positions, as it makes wider “organisational changes.”

Co-CEOs Greg Peters and Ted Sarandos announced the job cuts in a memo to employees Wednesday.