The BHP Group Ltd (ASX: BHP) share price is down 4% in early trading on Friday. What's causing the decline?
Could it be the latest reaction to production numbers?
Earlier this week, BHP revealed its quarterly update to investors for the three months to 31 March 2022.
Quarter on quarter, its iron ore production was down 10% because of temporary labour constraints due to COVID-19, train driver shortages and planned maintenance activities. Nickel production was down 13% quarter on quarter because of labour constraints. Energy coal production was down 13% because of wet weather and COVID-19 absenteeism.
BHP reduced its full year copper production guidance and full year nickel production guidance.
ASX 200 drops
But it's not just the BHP share price which is down. The S&P/ASX 200 Index (ASX: XJO) is down 1.6% at the time of writing.
The US Federal Reserve Chair Jerome Powell commented overnight on the need to reduce inflation. While on an International Monetary Fund panel, Mr Powell said:
It is appropriate in my view to be moving a little more quickly. I also think there is something to be said for front-end loading any accommodation one thinks is appropriate…I would say 50 basis points will be on the table for the May meeting.
Our goal is to use our tools to get demand and supply back in synch, so that inflation moves down and does so without a slowdown that amounts to a recession. I don't think you'll hear anyone at the Fed say that that's going to be straightforward or easy. It's going to be very challenging. We're going to do our best to accomplish that.
It's absolutely essential to restore price stability.
Changing interest rates, and the expected rate of those changes can have an impact on asset prices. Warren Buffett once described interest rates as gravity on asset prices – the higher the interest rate, the stronger the downward pull on asset prices.
The BHP share price isn't the only one that is hurting. The Commonwealth Bank of Australia (ASX: CBA) share price is down 2% and the Fortescue Metals Group Limited (ASX: FMG) share price is down 2% as well. Larger businesses have a bigger impact on the ASX 200 than the smaller ones.
