Australian stocks are tanking

(Photo by Jim Dyson/Getty Images)

The ASX200 is tanking today.

The index fell by as much as 1.2% in early afternoon trade, before some buyers stepped in. A short time ago it was down by 0.86%, with the mining and materials sectors leading the falls.

In the Asia-Pacific region, selling appears to be specific to the local market. Stocks in Hong Kong and Shanghai are edging higher, while South Korea is down slightly but little changed.

Here’s the chart showing Australian trade:

It’s another poor showing from the local index, which has struggled for any momentum this week as it traded in the lower end of its recent range.

Today’s price action on the share market follows a further sell-off in Australian government bonds, following last night’s interest rate announcement by the US Federal Reserve where it confirmed it would start reducing the size of its balance sheet.

Yields on 3-year government bonds are now at their highest level since 2014, while longer-term 10-year bonds are at levels not seen since March this year.

The ASX financials index is down 0.6%, with ANZ the worst performer among the big banks more than 0.8% lower.

Typically financial stocks benefit from rising yields, and multiple analysts have recently taken a more hawkish view towards the prospect of interest rate hikes in Australia.

But Chris Weston, chief strategist at IG Markets, said that Australian banks have less room to move than lenders in other developed economies, given Australia’s high levels of household debt.

“If funding costs rise, the question is how do banks absorb it without passing the costs on to borrowers who are already stretched and over-leveraged,” Weston said.

“That could have a flow-on effect and negatively impact the demand for credit, while increasing the amount of loans in arrears and doubtful debts on banks’ balance sheets.”

Weston added that today’s moves may be reflective of some re-positioning, as the withdrawal of global liquidity potentially gives rise to renewed strength in the US dollar.

Among the worst hit stocks in the resources and materials sector, Bluescope Steel is over 4% lower, while a short time ago Fortescue was down more than 2%.

The big players – BHP and Rio – a short time ago were down by 0.6% and 0.4% respectively. Gold miner Newcrest Mining was down more than 3%, while BHP’s off-shoot South32 reversed the trend and a short time ago was around 1.1% higher.

Prices for base metals prices continue to dip from their recent highs, with both copper and zinc down by around 1% which nickel is almost 2% lower.

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