ASX set to fall after Fed hints at further rate hikes, sending Wall Street lower

The Australian sharemarket is set for a soft start this morning as Wall Street extended its sell-off overnight after Federal Reserve Chairman Jerome Powell said the inflation fight still had a “long way to go”.

All three major US stock indexes notched their third straight daily declines, with interest rate sensitive momentum stocks weighing the tech-laden Nasdaq down most. Tesla, along AI-related stocks such as Microsoft and Nvidia, were the heaviest drags. In Australia, ASX futures were down 8 points, or 0.1 per cent, at 7276 shortly at 6:30am AEST.

In his testimony before the US House Financial Services Committee, Powell reiterated the fact that the central bank remains “strongly committed to bringing inflation back down to our 2 per cent goal,” and said it would be “a pretty good guess” that future interest rate hikes are in the cards if the economy continues on its current path.

“Powell is not going to diverge from what he said at the press conference last week; the Fed is going to be hawkish until inflation reaches 2 per cent,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “The Fed is keeping this tough talk going because they don’t want the markets to get over enthusiastic.”

At last glance, financial markets have priced in a 79 per cent likelihood of another 25 basis point interest rate hike at the conclusion of July’s monetary policy meeting, according to CME’s FedWatch tool.

The Dow Jones Industrial Average fell 102.35 points, or 0.3 per cent, to 33,951.52, the S&P 500 lost 23.02 points, or 0.5 per cent, to 4,365.69 and the Nasdaq Composite dropped 165.10 points, or 1.21 -per cent, to 13,502.20.

“It seems the market is catching its breath after a huge start to the month,” said Ryan Detrick, chief market strategist at Carson Group in Omaha. “Historically, June isn’t a very strong month for stocks, but this year could go down as one of the strongest Junes ever; so a small break in the run stocks have had is perfectly normal.”

Among the 11 major sectors of the S&P 500, energy stocks led the gainers, rebounding from its biggest daily plunge in over a month. Communication services and tech suffered the largest percentage drops.