Australian shares are getting crushed

David McNew/Getty Images

The local market was having its worst day in two months after being run over by a global sell off.

On Friday Wall Street dropped hard with the S&P 500 closing down 2.5% as investors worried about a nuclear test in North Korea and the future of interest rates in the US.

On the local market today, the ASX 200 fell below the key 5300 point mark. A short time ago, the index was at 5,215.50, down 123.68 points or 2.32%.

Today is the biggest fall since the Brexit vote in the UK in June and this will be the fifth week in a row that the index has fallen.

All ten sectors were in the red, with the major banks and the big miners leading the slide, as more than $37 billion in value was wiped from the market.

BHP was down 4% to $19.93, Woodside Petroleum 3.4% to $27.36 and Fortescue Metals almost 4% to $4.75.

Financial stocks were weighing heavily on the market. The NAB was down 2.6% to $26.58, the ANZ bank 2.5% to $26.07, Macquarie Bank had lost 4% to $77.09 and AMP 2% to $5.26.

Fat Prophets, in its morning note, says the weakness in the markets was started by a number of Federal Reserve regional presidents making hawkish comments, which raised concerns that an interest rate tightening is close at hand.

On Friday the Boston Fed President Eric Rosengren said “a reasonable case can be made” for raising interest rates gradually. Dallas Fed President Rob Kaplan also said that the case for a rate hike had improved.

Baillieu Holst, in a morning note to clients, said: “Earnings season has come and gone and with the exception of a few of the high growth areas, optimism for the future is in scarce supply.”

Chris Weston, chief market strategist at IG, says the ASX 200 has become something of a leading indicator behind the moves in markets.

The index, with its highest aggregate dividend yield in developed markets, has been sold down since August 23.

He says the bond markets are at the epi-centre of concerns, with investors selling, helping fuel an unwind of the hunt for yield trade.

The benchmark Australian Commonwealth Government Bond (ACGB) 10-year rate, which spent the last 6 weeks hovering between 1.8% and 2%, has risen to 2.11% – its highest level since the Brexit vote in June.

Bond yields rise when prices fall.

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