The US Federal Reserve spooked investors today. Photo: Peter Braig
A three-pronged attack of uncertainty has wiped off more than $27 billion from the sharemarket – its deepest one day rout in almost six weeks.
As speculation intensified about the US Federal Reserve beginning to wind back its stimulus efforts, worth $US85 billion a month, in September, the S&P/ASX 200 Index plunged 94.3 points, or 1.8 per cent, to 5011.3 points, posting its second day of losses and biggest one day drop since July 3. The broader All Ordinaries index fell 91.4 points, or 1.8 per cent, to 4996.6.
Sharemarkets around the region were also under pressure, with Japan’s Nikkei average tumbling 4 per cent, its biggest intraday hit since mid-June.
The local losses came after the Reserve Bank signalled it could end its easing cycle after it cut the official cash interest rate for the second time in four months. That combined with a federal election campaign, which normally steers the market sideways, compounded the plunge in negative territory, according to AMP chief economist Shane Oliver.
Dr Oliver said the uncertainty usually scared off foreign investors, which control about 30 per cent of the Australian sharemarket.
‘‘That has been reinforced by all this tapering talk. If you go back to May and June when the tapering talk in the US first erupted it tended to be positive for the US dollar and negative for currencies like the Australian dollar, and that has weighed on our sharemarket,’’ Dr Oliver said.
‘‘There’s this thought that if America’s economy is looking stronger and they’re starting to reduce the monetary stimulus then it make sense to start putting money back in the US, and by implication that means less money for Australia,’’ Dr Oliver said.
But RBS Morgan private client adviser Bill Bishop said the Fed comments should not have taken the market by surprise.
‘‘They’re gently breaking us in, and it had to happen, quite frankly,’’ he said. ‘‘They’re going to happen to do it sooner or later, and the market’s hooked on the drug [of stimulus], and they like it.’’
The resource sector led the nosedive on the ASX, sliding 2.6 per cent, as Australia's High Court found a controversial profits tax on iron ore and coal mines was constitutional.
Fortescue Metals, which led the challenge, tipped 18 cents, 4.6 per cent, to $3.75. Index behemoths BHP Billiton and Rio Tinto were also down, slipping 2 per cent to $34.90 and 2.1 per cent to $58.60 respectively.
The big banks also weighed on the market with Commonwealth shedding $1.45, or 2 per cent, to $72.08, and Westpac finishing 70 cents, or 2.2 per cent, lower at $72.08. NAB and ANZ fell 1.7 per cent to $30.53 and 2.2 per cent to $29.10 respectively.
Surfwear company Billabong was the best performing stock, rising 10.1 per cent to 49 cents.
The company formerly known as News Corp, 21st Century Fox, was also among the top performers, advancing 0.8 per cent to $35.11 after reporting a 9 per cent rise in earnings in the 2012-13 financial year.