Australian shares set to follow declines on Wall Street

The news: The Australian sharemarket is set to open lower after the S&P 500 and the Nasdaq tumbled overnight on Wall Street, led by plunging microchip stocks.

The numbers: The Dow Jones index managed to end 0.59% higher but the broader S&P 500 lost 1.39% and the tech-heavy Nasdaq slid 2.77%. In the local market, ASX 200 futures were down 43 points or 0.54% to 7,986 points at 7.00am AEST on Thursday.

The context: While the Dow held onto a modest gain and logged its third straight record closing high, the other two major indices fell after a report that the Biden administration is considering severe trade restrictions against China exacerbated the ongoing rotation out of megacap tech-related stocks. On the economic front, housing starts and building permits surprised to the upside. In a separate report, US industrial output rose at double the expected rate in June. The data fell in lockstep with recent reports suggesting US economic resiliency, which will help the Federal Reserve bring inflation down to its 2% target without tipping the economy into contraction. Financial markets are now pricing in a 93.5% probability that the Fed will begin cutting rates in September, according to CME's FedWatch tool.