Australian stocks tumbled, hit by a wall of selling from the US.
On Wall Street the Dow Jones index dropped 2.5% on Friday, the biggest daily fall since June 2016. The S&P 500 index lost 2.1% and the tech heavy Nasdaq 2%.
On the local market, financial stocks and the big miners led the crunch.
At the close, the ASX200 was at 6,026.20, down 95.20 points or 1.56%.
Westpac shed 1.2% to $31.31 and the Commonwealth 1.2% to $79.80.
BHP was down 2.1% to $30.15, Rio Tinto 2.2% to $76.50 and energy group Santos 3.5% to $5.18.
Among retailers, Harvey Norman was down 2.6% to $4.37 and Wesfarmers shed 4.5% to $42.16 after writing down the value of its UK Bunnings business and its discount retail chain Target.
The ASX200 A-REIT sector was down by 1.1%. Real estate investment trusts are often seen as susceptible to rising bond yields, as investors typically hold them for a steady dividend yield rather than capital growth.
The selloff in equities same after a sharp rise in bond yields on Friday, following US data showing wages climbing higher than expected – a key indicator that inflationary pressures are rising. Higher inflation means the US Federal Reserve may have to raise interest rates quicker than expected, which puts upward pressure on yields and borrowing costs.
The falls on Wall Street, while steep, take the market back to levels in early January.
“Some would say that it has been a long time in coming,” says CommSec. “That is, a pull-back in the US sharemarket after stellar gains for months.
“Well on Friday that pull-back occurred with the Dow Jones falling over 600 points or 2.5%. So where does that take the market back to? Actually only to the levels of January 10, around three weeks ago.”
Shane Oliver, chief economist at AMP Capital, says the US share market is long overdue a decent correction.
“This now appears to be unfolding and may have further to go as higher inflation, a slightly more aggressive Fed and higher bond yields are factored in,” he says.
“However, in the absence of an aggressive 1994 style back-up in bond yields or a US recession — neither of which we expect — the pull back in shares should be limited in depth and duration to a correction (with say a 10% or so fall) and shares should have positive returns this year as a whole.”