Australian shares set to track falls on Wall Street

The news: The Australian sharemarket is set to drop in early trading, tracking major US indices which tumbled after a higher-than-expected consumer inflation reading.

The numbers: The Dow Jones index is trading 1.53% lower, while the broader S&P 500 lost 1.46% and the tech-heavy Nasdaq dropped 1.74%. In the local market, ASX 200 futures were trading 128 points or 1.69% lower at 7424 points at 7:00am AEDT on Wednesday.

The context: Wall Street's main indexes fell after US consumer prices rose by a higher than expected 3.1% amid a surge in the cost of rental housing in January. US Treasury yields jumped on the news, which also pushed back market expectations of imminent interest rate cuts.

Markets have rallied this year on bets the Fed would start trimming rates in May. After the release of the inflation data, however, expectations for a June rate cut stood at 75%, the CME FedWatch tool showed. In the local market, the focus will be firmly on company earnings, with Commonwealth Bank, Ansell and Dexus among those reporting results on Wednesday.