Surprise US inflation pumps the brakes on ASX 200 bank shares

ASX 200 bank shares are sliding today amid 40-year high inflation figures from the United States.

The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is down 1.92%, while the Westpac Banking Corp (ASX: WBC) share price is down 1.76%.

The Commonwealth Bank of Australia (ASX: CBA) share price has also fallen by 1.49%.

Let’s delve a little more into why ASX 200 bank shares are falling.

ASX 200 bank shares down

Other ASX 200 bank shares sliding today include Macquarie Group Ltd (ASX: MQG) down 0.68% and National Australia Bank Ltd (ASX: NAB) down 0.46%.

The S&P/ASX 200 Financials Index (ASX: XFJ) is also 0.82% in the red.

In news from the US overnight, inflation has jumped to 9.1%, leading to speculation the US Fed will raise rates again. High inflation in the US could be sparking fears Australia will follow a similar trend.

Broker warns 3.5% cash rate would ‘crash housing’ in Australia

A note out of UBS cited by The Australian warns a 3.5% interest rate would “crash housing” and could lead to a recession.

UBS Australia chief economist George Tharenou said:

We still think market pricing of about 3.5 per cent – if delivered – would likely crash housing, and see the economy nearing a recession.

Interest rate rises can mean higher prospects for bad debts, as my Foolish colleague Tristan reports today. However, on the flip side, rising rates can also lead to higher lending margins for the banks.

Home loan rates could nearly double to 6%

In further comments reported in The Australian, Tharenou warned interest repayments could nearly double to 6% at a 3.5% cash rate, adding:

Interest payments across the economy next year for the household sector will close to double from now. That really crushes household cashflow next year when you have cost-of-living issues.

Labour market tightens again

Meanwhile, new figures from the Australian Bureau of Statistics released today show unemployment has fallen 0.4% from 3.9% to 3.5%.

This could spark more speculation about rate rises, given inflation is often higher in a lower unemployment environment.

The post Surprise US inflation pumps the brakes on ASX 200 bank shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Monica O’Shea has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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