Australian shares to open lower as inflation concerns weigh on Wall Street
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The news: The Australian sharemarket is set to open lower after Wall Street closed down overnight, as the Federal Reserve signalled the possibility of higher interest rates while assessing the inflationary impact of the US-Iran conflict. New chair Kevin Warsh highlighted the need to contain inflation, while other policymakers projected the potential for further rate increases later this year.
The numbers: Updated at 7:50am AEST:
- ASX futures: down 61 points to 8,892 points
- Wall Street: Dow Jones down 0.98%, S&P 500 down 1.21%, Nasdaq down 1.34%
- Europe: FTSE 100 up 0.14%, CAC 40 up 0.20%, DAX up 0.10%
- Spot gold: down 1.75% to USD4,256 per ounce
- Oil prices: Brent down 0.10% to USD79.03/barrel, US WTI down 0.08% to USD75.96/bbl
- AUD: down 0.77% at 70.13 US cents
- Bitcoin: down 2.59% to USD63,945.
The context: The three major US indices closed lower on Wednesday, with the S&P 500 and Nasdaq both falling more than 1% after Federal Reserve officials signalled a greater probability of higher interest rates, pushing stocks lower and bond yields higher.
The Federal Reserve left interest rates unchanged at 3.50%-3.75%, as expected, but policymakers projected at lease one rate increase later this year amid concerns inflation will remain above the central bank’s 2% target.
Following the decision and repeated comments from chair Kevin Warsh that “price stability” would remain the Fed’s priority, money markets fully priced in a rate hike by October, according to Bloomberg.
The Fed’s updated projections show nine policymakers expect at least one rate hike, including six who forecast at least two. Another nine expect rates to remain unchanged or to be cut. Warsh did not submit an individual forecast.
On the data front, US retail sales rose 0.9% in May, exceeding economists’ expectations of a 0.5% increase, according to Reuters. The gain was driven by stronger motor vehicle purchases despite higher petrol prices.
Elsewhere, Brent crude traded around USD79 ($113) a barrel, near its lowest level since the early stages of the US-Iran war. The International Energy Agency said even if a peace agreement holds, it could take months for oil production and exports to fully recover.
Globally, the Bank of England is scheduled to announce its latest monetary policy decision at 9:00pm AEST.
