ASX set to fall after Wall Street slips as traders parse Fed minutes

The Australian sharemarket is set for another soft start on Thursday after Wall Street declined, with traders poring over the Federal Reserve minutes to gauge what action the US central bank will take later this month.

ASX futures were down 34 points, or 0.47 per cent, to 7185 as of 6:40am AEST, following a 0.4 per cent decline on the local bourse on Wednesday. The S&P 500 slipped 0.2 per cent following the release of the minutes of the Fed’s last policy meeting, edging down from its highest level since April 2022. The Dow fell 0.4 per cent. The Nasdaq gave back 0.2 per cent.

The June gathering threw Wall Street for a loop as officials paused their rate-hiking cycle after 10 consecutive increases. The Fed’s minutes released overnight showed division among members of the Federal Open Market Committee, where some would have preferred another hike in June amid a tight US labour market.

“This adds to the high probability the Fed hikes again on July 26,” Ian Lyngen, a strategist with BMO Capital Markets wrote. “The FOMC minutes deliberately left investors with the impression that June’s pause was a close call and that a July hike is the committee’s base case scenario.”

Investors will be closely watching America’s June employment report coming out on Friday for signs of a cooling labour market.

“Our view is that the recession won’t strike until next year,” said Benjamin Kirby, co-head of investments at Thornburg Investment Management.

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The yield on policy-sensitive two-year Treasuries was little changed at 4.94 per cent, while the 10-year advanced to 3.94 per cent. That inverted yield curve is often read as a sign of a coming economic slump.

The Fed has forecast two additional rate increases this year, which could further weigh on economic growth and corporate profits. The Fed’s next rate decision is due in three weeks.