Market close: US inflation data sends share markets into a 'tailspin'

Local stocks were on track for their worst one-day decline in more than a year but recovered late in the session. Photo / NZME

New Zealand's benchmark equity index dropped sharply as hot inflation data sent investors rushing to sell shares ahead of further interest rate hikes.

The S&P/NZX 50 Index fell 211 points, or 1.9 per cent, to 10,924.74. Turnover was light at $132 million, with Australia celebrating Queen's Birthday Weekend today.

US share markets slumped, and bond yields jumped on Friday when consumer price index data showed inflation hadn't peaked last month as some investors had expected. Instead, prices increased another 1 per cent in May and hit 8.6 per cent year-on-year ­– the highest annual rate in over 40 years. Core inflation was up just 0.6 per cent but was still higher than expectations.

BNZ's Jason Wong described this result as a "shocker" than had "sent markets in a tailspin".

"Suffice to say, there was nothing to celebrate in these data releases and the market concluded that the Fed had plenty more work to do to bring inflation under control," he said in a note this morning.

NZ government bond yields jumped 13 basis points to the highest levels in almost a decade. The 10-year yield broke above 4 per cent for the first time since 2014, following US bonds.

Traders in the US think the high inflation number might force the Federal Reserve to consider a 75 basis-point rate hike, despite it being off the table previously.

Local stocks were on track for their worst one-day decline in more than a year but recovered late in the session.

Matt Goodson, a director at Salt Funds Management, said having Australian investors on holiday had resulted in poor liquidity and that made the market weakness worse.

The decline hit a broad base of companies, he said, with investors choosing to sell a bit of everything rather than just those most exposed to interest rates or inflation.

"Hard selloffs often are broad-based, they extend out beyond the most obvious stocks," he told BusinessDesk.

A2 Milk was the hardest hit, falling 9 per cent to $4.53 and giving up almost a month's gain in the process.

The stock had rallied in recent weeks on hopes the infant formula shortage in the US would give the company an entry into the US market.

My Food Bag Group fell 5.4 per cent to 88 cents but is still up 10 per cent in the past month.

Tourism Holdings declined 3.4 per cent to $2.60 after the RV rental company's chair, Rob Campbell, resigned today with immediate effect.

Campbell had previously signalled he would give up some of his directorships to free up time to chair the newly formed Health NZ but hadn't specified his Tourism Holdings role.

Steel & Tube Holdings dropped 4.6 per cent to $1.24 but the company's two most senior managers declared they had recently bought up 40,000 shares for $50,689, or $1.26 per share.

Mercury NZ fell 4 per cent to $5.51 and Meridian Energy dropped 3.4 per cent to $4.51, while Genesis Energy was up 0.8 per cent at $2.58 – one of only a handful of stocks to gain.

Honey maker Comvita dropped 0.6 per cent to $3.18, despite tightening its full-year earnings to between $28.5m and $30m, effectively trimming $1.5m from the lower end.

The company said it was forecasting "double-digit growth" in net profit from the previous year.

The NZ dollar was trading at 63.24 US cents at 3pm in Wellington, down from 63.97 cents yesterday. The trade-weighted index was at 71.30, from 71.51 yesterday.

Bond traders predicting more aggressive monetary policy – and the economic turbulence that comes with it – sent the US dollar higher over the weekend.