Australian shares set to open lower following US market reversal

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Australian shares are expected to open lower today, following a mid-afternoon reversal in the S&P 500 and a shift in the US Federal Reserve's rate expectations. ASX futures were down 16 points or 0.2 per cent to 7155 near 7am AEST, after having been more than 20 points higher earlier.

The shift follows the Federal Reserve's statement at 4am AEST, where policymakers held rates steady for this month but kept the door open for a potential additional quarter-point increase this year. They also indicated a slower transition to rate cuts in 2024, contrary to previous expectations.

In a note, Morgan Stanley (NYSE:MS) chief economist Ellen Zentner said: “A further hike this year remains an option, and the message of higher for longer was hammered home in fewer rate cuts in 2024, and an end-26 median funds rate at 2.875 per cent.”

The US market saw mixed responses with the Dow Jones down by 0.2%, S&P by 0.9%, and Nasdaq by 1.5%. Among individual stocks, BHP fell by 0.6%, while Atlassian (NASDAQ:TEAM) dropped by a significant 2.2%. On the other hand, Rio saw a marginal gain of 0.2%.

Tech giants also experienced losses with Tesla (NASDAQ:TSLA) down by 1.5%, Apple (NASDAQ:AAPL) by 2%, Alphabet (NASDAQ:GOOGL) by 3.1% and NYSE Fang by 2.1%. Other significant movers included Klaviyo, which rose by 9.2% on its trading debut, Instacart that slid by 10.7%, and Arm Holdings (NASDAQ:ARM) which was down by 4.1%.

US Treasury two-year yields climbed to their highest level since 2006 with the ten-year yield topping at 4.40% late in New York’s day, reflecting the market's reaction to the Federal Reserve's announcement.

Earlier, US stocks were mixed after the Federal Reserve indicated that it may not cut interest rates next year as much as previously thought. The S&P 500 was 0.1 per cent higher in afternoon trading, while the Dow Jones was up 0.6 per cent and the Nasdaq composite was 0.1 per cent lower. The Australian sharemarket was set to open higher, with futures pointing to a rise of 15 points, or 0.2 per cent at the open.

Fed chairman Jerome Powell stated that the central bank is “prepared to raise rates further if appropriate.” The Fed held its main interest rate steady and suggested they may raise the federal funds rate one more time this year, as it tries to bring inflation back down to its target of 2 per cent. Fed officials also hinted they may cut rates next year by only half a percentage point, deviating from their earlier projection of a full percentage point of cuts in 2024.

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