The local stock exchange has dropped sharply, tumbling along with markets around the world after a worse-than-expected US inflation report raised the prospect of even more aggressive rate hikes in the world’s largest economy.

The benchmark S&P/ASX200 dropped 184 points in the first 10 minutes of trading on Wednesday and was more or less treading water after that.

At noon, the index was down 185.1 points, or 2.64 per cent, to a one-week low of 6824.2. The broader All Ordinaries was 188.1 points lower, or 2.59 per cent, to 7065.6.

Every sector was down by at least 1.3 per cent, with tech shares down by 3.9 per cent, consumer discretionary plunging by 3.4 per cent and mining dropping by 1.9 per cent.

The market remained that way for the rest of Wednesday, finishing the day down 181.1 points – or 2.6 per cent.

Tweet from @ASX

In the US overnight, the S&P500 plunged 4.3 per cent – its worst trading day since June 11, 2020 – after the monthly consumer price index came in higher than expected, despite falling gas prices.

“There is no way the Federal Reserve can moderate its policy tightening or ease its overtly hawkish forward guidance,” ANZ economist Adelaide Timbrell said in a client note.

The US market is anticipating the US Federal Reserve will dish out another 75 basis point interest rate hike next week, Ms Timbrell said, and there is even a chance for a hike of 100 basis points.

Global markets had been gaining since late July, based on optimism – which looks misplaced in hindsight – inflation had peaked and central banks would pivot away from aggressive rate hikes.

Higher interest rates are generally a negative for sharemarkets because if decent returns are available on bonds and savings accounts, riskier equities look less attractive.

The Australian Securities Exchange had closed higher for a fourth straight day on Tuesday, finishing above the 7000 level for the first time in two-and-a-half weeks.

Wednesday’s sell-off was on pace to be the worst since the local market fell 246 points, or 3.6 per cent, on June 14 – the day after the Queen’s Birthday holiday.

That plunge was also prompted by a worse-than-expected US inflation report.

The heavyweight financial sector was down 2.9 per cent, with NAB and CBA down 3.4 per cent, and ANZ and Westpac down a little more than two per cent.

BHP had dropped 1.1 per cent to $38.88, while Rio Tinto was down 1.3 per cent.

Woolworths was down 2.6 per cent to a month-and-a-half low of $35.02.

– AAP