Australian shares slumped 2% on Friday after scaling record highs in the last two straight sessions, in tandem with a global broad-based sell-off as weaker-than-expected US data spurred worries of a worsening economic outlook.

The S&P/ASX 200 index fell 1.9% to 7,959.70 points by 0039 GMT, and was headed for its worst session since March 2023.

The Aussie dollar was 0.18% stronger against the US dollar to A$0.65.

A measure of US manufacturing activity dropped to an eight-month low in July, signifying contraction in a sector that accounts for 10.3% of the world’s largest economy.

The data dampened risk sentiment even after the US Federal Reserve had earlier in the week signalled a rate cut could come as soon as September.

Meanwhile, the Reserve Bank of Australia is expected to hold interest rates when it meets on Aug. 6, and wait until the first quarter of 2025 before reducing them, a Reuters poll showed. The chances of a hike were wiped out earlier this week on cooler-than-expected inflation print.

In Sydney, heavyweight miners led the losses with a 2.1% decline, despite iron ore futures rising to a more than one-week high on Thursday.

Energy stocks fell 2.5% as oil prices slipped after global supply seemed largely unaffected by worries of a wider Middle East crisis.

Brent crude futures rose 0.44% to $79.87 a barrel in Asian hours, while US West Texas Intermediate (WTI) crude gained 0.51% to $76.70 per barrel.

Australian shares hit record high; RBA cautious on inflation

Overnight, the US Dow Jones Industrial Average fell 494.82 points, or 1.21%, at 40,347.97 points.

The S&P 500 lost 75.62 points, or 1.37%, while the Nasdaq lost 405.25 points, or 2.30%.

Australian real estate sector, which is sensitive to shifts in interest rates, fell 2.5%.

Financials dipped 2.1%, with the “Big Four” banks fell between 1.9% and 3%.

In New Zealand, the benchmark S&P/NZX 50 index 1% to 12,345.25 points.