United States inflation figures and fears of a global recession have sent the New Zealand sharemarket into a tailspin for the second day in a row.
The NZX50 fell about 2.5% yesterday to 10,641 points, the second day of big declines with the index falling about 2% on Monday.
Yesterday’s decline followed a tumultuous Monday on Wall Street, where US stocks plunged, shares on the S&P 500 slumping 3.9% when the market closed yesterday morning, New Zealand time.
The Dow Jones fell 876 points, or 2.8%, and the tech-heavy Nasdaq fell 4.7%.
In Australia, shares on the S&P/ASX200 sank 5% in early trade, while Japan's Nikkei stock index was down 1.74%.
On Friday, the United States’ Labour Department released its consumer-price index (CPI) figures for May, which found inflation had increased by 8.6% — a higher figure than what the market had been expecting.
Craig Investment Partners broker Peter McIntyre said that figure took markets by surprise.
Fears of a recession and stagflation — when there is low growth but high inflation — were also in the mix.
The United States’ Federal Reserve will meet on Thursday morning, New Zealand time, when it is widely expected the bank will lift interest rates aggressively to help get inflation under control.
The market had priced in a 75bp hike and some economists were predicting it could go for the large hike twice.
Most reserve banks globally were confident they could increase their cash rate by 75bp because unemployment was at record lows.
"That will give them confidence because unemployment has not risen," he said.
The next move for the market would be analysing what Jerome Powell, the Federal Reserve’s chairman, had to say about the pathway for future interest rates, Mr McIntyre said.
"It is getting more and more obvious that inflation is getting more and more sticky ... how aggressive he goes is going to give direction to the market."
NZ Funds chief investment officer James Grigor said inflation was not going to be a quick fix.
Initially it was expected the current inflationary period would pass, but that was now no longer the case.
High inflation and interest rates caused the market to be more volatile because assets prices were being affected and were decreasing.
Mr Grigor expected the markets would be volatile for about six to 12 months as it digested the higher interest rates that would help "fight off" inflation.
Locally, Scott Technology took the biggest decline for southern listed companies, falling 2.76% to $2.82.
Meanwhile, Pacific Edge dropped about 1.4% to 71c a share.
Blis Technologies and South Port were unmoved.
- Additional reporting from Reuters
