Investors have been left to lick their wounds at the end of an unforgiving week for ASX shares. The S&P/ASX 200 Index (ASX: XJO) finished the week 2.2% lower, marking the worst Monday-to-Friday performance in the last 10 months.
The real estate sector led today's disappointing result, falling 2.57% on the day. Similarly, poor showings were experienced by consumer discretionary and ASX tech shares. Only eight of the benchmark's top 200 companies managed to inch their way into the green on Friday.
After the Reserve Bank of Australia decided to keep rates on hold on Tuesday, the lacking display from ASX 200 shares might seem peculiar. So, why did the Australian share market struggle this week?
More rate pain to come
Just as the market was getting cosy with the idea of interest rate rises nearing their end, economic data from the United States last night reignited concerns. The information prompted markets to reassess their expectations of a July hike by the Federal Reserve.
In June, US private payrolls increased by 497,000, exceeding the 228,000 forecast considerably. Treasury yields, a barometer for the market's expected rate, leapt in response — pushing the 2-year and 10-year bond yield above 5% and 4%, respectively.
The S&P 500 Index (SP: .INX) and Nasdaq Composite Index (NASDAQ: .IXIC) finished in the red last night amid the revelation. As they say, Australia catches a cold when the US sneezes, sending ASX 200 shares lower. Ultimately, the increasing odds of further tightening only narrow the tightrope needed to be walked by the central bank.
In his address on Tuesday, RBA governor Philip Lowe hinted at the possibility of future increases to rates, stating:
Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve
Lowe is expected to speak on behalf of the RBA on Wednesday next week. The speech should shed more light on what the path forward may look like.
