ASX Large Caps: Shares tumble 1pc on shock inflation report; China stocks enter bear territory

• The ASX tumbled -1%, erasing Tuesday’s gains on shock inflation report
• Australian headline inflation rose in April, as traders placed bets on more RBA hikes
• Chinese stocks enter a bear market

The ASX fell by almost -1.5% today, erasing the gains made on Tuesday.

Stocks tumbled as money market traders placed bets the RBA would hike a full 25bp by August following today’s shock inflation report.

Data from the ABS shows that Australia’s headline inflation came in at 6.8% for April, up from 6.3% the month before, driven by rising fuel costs.

Josh Gilbert, market analyst at eToro, said this will make RBA’s job harder as the central bank’s board meets on June 6.

“This data today shows that inflation locally is stubborn, and another hike from the RBA next week seems to very much be on the table,” said Gilbert.

However, once volatile items like energy were excluded, the underlying inflation rate (the one RBA watches closely) was 6.5% versus 6.9% in March.

On the ASX, all sectors except for Utilities were in the red, as Energy and Discretionary plunged the most by -2% each.

Coal miners tumbled across the board after Newcastle coal futures fell by as much as 12% yesterday.

Chinese stocks in bear territory

The Hang Seng China Enterprises Index, an index that tracks mainland Chinese stocks listed in Hong Kong, fell by -2.5% today.

The index has lost -10% this year, and more than -20% since January 27, putting it in a technical bear market.

Global funds have been withdrawing out of Hang Seng due to the Chinese government crackdown, and also because of the sluggish Chinese recovery post Covid.

Data today showed that China’s manufacturing activity contracted for a second month in May.

Even some China bulls like Citi Group have gradually started to retreat and trimmed their portfolio allocations to China.

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Bank of Queensland (ASX:BOQ) fell -6% after the bank entered into an enforceable undertaking with regulator APRA to address “weaknesses in BOQ’s risk management practices, controls, systems, governance and risk culture”. APRA has determined that it will be adding $50 million to BOQ’s ‘operational risk capital requirement’. BOQ has also entered into a voluntary enforceable undertaking with AUSTRAC on issues such as money laundering.

Coal stocks including Whitehaven (ASX:WHC) and New Hope (ASX:NHC) fell around -4% amid dipping coal prices.