Australian shares were set to open modestly lower following declines in the US as economic data sharpened inflation worries ahead of tonight's Federal Reserve policy statement.
US stocks retreated as producer prices surged and retail sales contracted.
Oil settled at a fresh two-year high. Copper slumped 4 per cent to a seven-week low. Gold touched its weakest level in a month. Iron ore was flat. The dollar slid back below 77 US cents.
ASX futures dipped ten points or 0.14 per cent from record levels. The S&P/ASX 200 surged 67 points or 0.92 per cent yesterday as investors played catch-up with two days of gains in the US across the long weekend.
The S&P 500 and Nasdaq backed off record heights ahead of a monetary policy statement with the potential to set the market tone for months to come. The Federal Reserve began a two-day meeting overnight and was due to release a revised policy statement tonight.
The S&P 500 set a new high early in the session before fading to a loss of nine points or 0.2 per cent. The Nasdaq Composite skidded 101 points or 0.71 per cent as traders dumped growth stocks vulnerable to inflationary pressures. The Dow Jones Industrial Average eased 94 points or 0.27 per cent.
Volumes were constrained by nerves over the prospect tonight's Fed policy statement will lay the groundwork for tapering the stimulatory bond-buying program introduced to cushion the economy during the pandemic.
A sharp jump in producer prices compounded fears the Fed will wind down pandemic support faster than the market currently expects. The producer price index jumped 6.6 per cent in May, the biggest increase in the 11-year history of the measure.
The central bank's official stance is that inflationary pressures will abate later this year as the post-lockdown economic rebound wears off. However, some market participants fear the bank has misread the economy, raising the threat of overheating.
“The longer they wait to talk, let alone launch taper, imbalances grow,” George Goncalves, head of US macro strategy at MUFG, told CNBC.
Hedge fund billionaire Paul Tudor Jones said he was nervous. "Things are absolute bat-shit crazy right now," he told CNBC. Jones recommended hedging against inflation if the Fed does not announce plans to tighten monetary policy in the months ahead.
Retail sales declined 1.3 per cent last month, twice the drop expected by economists surveyed by Dow Jones.
Tech stocks were the biggest drag overnight. The so-called Fab Five - Apple, Amazon, Alphabet, Facebook and Microsoft - all retreated.
The market flew higher yesterday and may need a breather today. The S&P/ASX 200 traded within two points of 7400 for the first time before trimming its rally. The index finished at 7380.
Wall Street backed off record levels, but there was little in the action to suggest genuine nerves over tonight's Fed outcome. Bond markets were quiet. We have been here before. The Fed is well skilled in managing market expectations and is unlikely to spring any nasty surprises tonight. The biggest risk now appears to be failing to acknowledge market concerns over rising inflationary pressures.
Energy was the best of the US sectors, rising 2.06 per cent as crude shone during a broadly negative night for commodity prices (more below). Industrials gained 0.47 per cent, utilities 0.35 per cent and financials 0.23 per cent.
Declines in metals helped pull the materials sector down 0.19 per cent. Real estate fell 1.03 per cent.
There is nothing major on the domestic economic calendar today. A heavy week for IPOs continues with nickel and gold miner Lunnon Metals and sports tech company HitIQ slated to debut.
The dollar retreated 0.34 per cent to 76.85 US cents.
Oil scaled fresh 24-month highs amid optimism about the improving outlook for the global economy. Brent crude settled $1.13 or 1.6 per cent ahead at US$73.99 a barrel.
Several industrial metals suffered heavy falls amid signs China may release state reserves to depress soaring prices. Copper sank to its lowest since late April. Benchmark copper on the London Metal Exchange fell 4 per cent to US$9,537.50 a tonne. Nickel also dropped 4 per cent. Aluminium lost 1.9 per cent, lead 1.5 per cent and zinc 0.5 per cent. Tin gained 0.8 per cent. US-traded copper slumped 4.3 per cent on Comex to US$4.33 a pound.
Iron ore resisted the sell-off. The spot price for ore landed in China was steady at US$222.35 a tonne.
BHP's US-listed stock fell 0.76 per cent and its UK-listed stock shed 0.98 per cent. Rio Tinto lost 0.63 per cent in the US and 1.28 per cent in the UK.
Gold fell to its lowest in a month in jittery trade ahead of the Fed policy statement. Gold for August delivery settled $9.50 or 0.5 per cent lower at US$1,856.40 an ounce. The NYSE Arca Gold Bugs Index fell 1.3 per cent.
Lukman Otununuga, senior research analyst at FXTM, said gold “collapsed like a tower of Jenga yesterday as jitters around the Federal Reserve outlining a path for scaling back emergency stimulus weighed heavily on the precious metal.”