Australian shares set to drop after Wall Street ends lower

The news: The Australian sharemarket is set to drop in early trading, in line with a lower close on Wall Street where investors took profits after a record high for all three major indices in the previous session.

The numbers: The Dow Jones index ended 0.10% lower, after reaching an intra-day high of 40,000 for the first time. The broader S&P 500 lost 0.21% while the tech-heavy Nasdaq slipped 0.26%. In the local market, ASX 200 futures were down 44 points or 0.56% at 7,875 points at 7:00am AEST on Friday.

The context: All three major US indices ended lower after paring earlier gains, with investor hopes of interest-rate cuts by the Federal Reserve buoyed by data showing inflation slowdown, as well as strong corporate earnings results. Data on Thursday showed the number of Americans filing new claims for jobless benefits fell last week, though labour market conditions remain fairly tight even as job growth is cooling.

All three indices had reached record closes on Wednesday after data showed a smaller-than-expected rise in consumer prices in April, indicating that inflation had resumed its downward trend. Investors are betting on two quarter-point interest rate cuts from the Federal Reserve this year, and estimate a 70% chance of the first reduction in September.