Australian shares have reversed early gains as global equity indices show evidence of a deepening bear market.

The ASX 200 was down 57 points, or 0.9 per cent, to 6,439 by 1:34pm AEST, and the Australian dollar was down to 64.07 US cents.

The benchmark index opened up 0.2 per cent this morning. 

Markets globally were weighed down by hawkish comments from St Louis Fed president James Bullard and Chicago Fed president Charles Evans, who made a case for the US central bank to have more rate hikes and increase interest rates by another percentage point this year, fuelling worries about global recession.

Back home, the technology sub-index tracked a sharp drop in its Wall Street peers and slipped 2.3 per cent.

Software company Megaport slumped nearly 4.9 per cent to lead the laggards in the sub-index, and ASX-listed shares of Block lost 1.1 per cent.

Healthcare stocks slipped 1.4 per cent. Telix Pharmaceuticals tumbled more than 15 per cent, their sharpest drop since mid-March, after the Australia-based drugmaker withdrew its application to market its prostate cancer imaging product, Illuccix, in Europe.

Miners lost 0.6 per cent despite iron ore futures rose after top steel producer China resumed ramping up output to cash in on increased construction activity.

Sector majors BHP advanced 0.3 per cent, while Rio Tinto shed 0.4 per cent.

Bucking the trend, energy stocks led the gains with a 0.8 per cent jump, as supply curbs in the US Gulf of Mexico ahead of Hurricane Ian lifted oil prices.

Oil and gas major Woodside Energy advanced 1.1 per cent while Santos shed 0.5 per cent.

Coal producers Whitehaven Coal and New Hope Corp rose as much as 4.6 per cent and 4.2 per cent, respectively, to lead gains in the sub-index.

Gold was flat at midday with Newcrest Mining, the country's largest gold miner, falling 0.3 per cent.

Retail sales rise

Australian retail turnover rose 0.6 per cent in August 2022, according to the Australian Bureau of Statistics (ABS). 

The August increase was the eighth consecutive rise and follows a 1.3 per cent rise in July 2022, and a 0.2 per cent rise in June 2022.

Ben Dorber, head of retail statistics at the ABS, said the rise was driven by the combined increase in food-related industries. 

"Cafes, restaurants and takeaway food services [are] up 1.3 per cent and food retailing up 1.1 per cent," he said.

Department stores rose by 2.8 per cent to a new record level, while household goods retailing had its largest rise since March 2022, up 2.6 per cent, having recorded three falls in the previous four months.

However, two states recorded falls with Western Australia down 0.2 per cent and Queensland down 0.1 per cent.

'More volatility and a need for caution'

US stocks gave up early gains to fall deeper into a bear market on Tuesday, while sterling showed scant movement a day after hitting a record low, as investors remain nervous about a potential global recession.

The pound was little changed, at $US1.071, after sterling collapsed to $US1.0327 on Monday on concern over the funding of recently announced UK tax cuts, which follow huge energy subsidies. 

Late on Monday, the Bank of England (BoE) said it would not hesitate to change interest rates and was monitoring markets "very closely".

BoE chief economist Huw Pill added that, on Tuesday, the central bank was likely to deliver a "significant policy response" to last week's announcement but that it should wait until its next meeting in November before making its move.

The yield on five-year gilts (UK government bonds) rose about 0.1 per cent, to about 4.6 per cent, holding its spike on Monday from just over 4 per cent.

US stocks mostly faltered after a morning bounce, with the S&P 500 hitting a two-year intraday low.

The Dow Jones Industrial Average fell 0.4 per cent, the S&P 500 lost 0.2 per cent, and the Nasdaq Composite added just 0.3 per cent.

Meanwhile, The S&P benchmark index fell more than 20 per cent from its early January high, to a low on June 16, confirming a bear market. The index then rallied into mid-August before petering out.

"We don't see a quick retrenchment or a return to 2 per cent inflation, keeping the Fed in hiking mode. This implies more volatility and a need for caution and balance in equity allocations," BlackRock's chief investment officer for US Fundamental Equities Tony DeSpirito wrote in a note released on Tuesday.

Markets see a 65 per cent probability of a further 75-basis-points move at the next US Federal Reserve meeting in November.

The Fed needs to raise interest rates by at least another percentage point this year, Chicago Fed President Charles Evans said on Tuesday, a more aggressive stance than he has previously embraced that underscores the central bank's resolve to quash excessive inflation.

"Central bankers have been walking a tightrope, trying to curb inflation while attempting to limit recessionary risks," Bank of America strategists wrote in a note released on Tuesday.

Global contagion

Spillover from Britain also kept other assets on edge.

The MSCI world equity index reversed early gains on Tuesday, falling about 0.3 per cent to a near two-year low early on Tuesday afternoon.

European stocks slipped 0.1 per cent.

Oil rallied after plunging to nine-month lows in the previous session, helped by supply curbs in the US Gulf of Mexico ahead of Hurricane Ian and by a slightly softer dollar.

Brent crude LCOc1 settled 2.6 per cent higher, at $US86.27 a barrel.

ABC/Reuters