The Australian sharemarket struggled in early trade on Wednesday, after Wall Street slipped further from its records overnight, with oil prices swinging on uncertainty about when the war with Iran will allow crude to flow freely again.

Commonwealth Bank, the nation’s biggest lender and the second-biggest stock on the local market, declined after warning economic growth was slowing due to higher interest rates and inflation.

The S&P/ASX 200 dropped 35.20 points, or 0.4 per cent, to 9215.40 as of 10.23am AEST, with all sectors bar utilities in the red. It added 0.2 per cent on Tuesday. The Australian dollar was trading at US70.67¢.

CBA’s shares dropped 1.1 per cent to $171.99 even after the banking giant notched up $11 billion in full-year cash profit, up 7 per cent, fuelled by growth across its vast loan and deposit portfolios.

Despite strong growth in the year to June, however, CBA said new applications for mortgages had fallen 15 per cent since the May budget, as the housing market slows due to higher interest rates and a tightening in tax concessions for property investors. The bank also said costs from soured loans had increased due to cost-of-living pressures and increased economic uncertainty.

“Growth is slowing, with higher interest rates and inflation placing uneven pressure on household incomes and economic activity,” CBA boss Matt Comyn said. “Housing activity has softened from a high base.”

The other big four banks also declined on the news, with National Australia Bank down 0.4 per cent, Westpac down 0.5 per cent and ANZ Bank down 0.7 per cent.

The mining heavyweights weighed on the market in early trade, too, with iron ore and copper powerhouses BHP, Rio Tinto and Fortescue down 0.5 per cent, 0.8 per cent and 1 per cent, respectively.

On Wall Street overnight, the S&P 500 fell 0.3 per cent for a second modest drop since setting its all-time high on Friday. The Dow Jones Industrial Average dipped 0.3 per cent, and the Nasdaq composite sank 0.6 per cent.

The action was stronger in the oil market, where the price for a barrel of Brent crude briefly jumped above $US90 in the morning before falling back below $US87. It eventually settled at $US88.91, up 1.4 per cent from Monday.

Such erratic moves have become typical since the United States and Israel attacked Iran in late February, which led to the closure of the Strait of Hormuz and kept much of the world’s oil pent up in the Middle East. Last month alone, Brent’s price veered between $US72 and $US102 per barrel.

Higher oil prices make inflation worse, and they’ve sent the average cost for a gallon of regular gasoline to $US4.01, according to AAA. That’s up from less than $US3.14 a year ago, though it’s down from last week’s nearly $US4.09.

That has Wall Street’s attention focused on Wednesday [early Thursday AEST], when the US government will release the latest monthly reading on inflation. Economists expect it to show inflation remains high but that it decelerated to 3.4 per cent in July from 3.5 per cent in June.

That could help the Federal Reserve, whose members are notably split on whether they should be raising the country’s interest rates to keep a lid on inflation. While higher rates could help slow the increases of prices on store shelves, they would also slow the overall US economy by making it more expensive for US households and businesses to borrow money. They would also undercut prices for stocks and other investments.

Traders are betting on a coin flip’s chance that the Fed will raise its main interest rate at its next meeting in September, according to data from CME Group. If it does, that would be the first increase in more than three years. It also could anger President Donald Trump, who has been lobbying for lower interest rates.

Treasury yields have jumped since the war with Iran because of higher oil prices and worries about inflation, sending long-term mortgage rates to their highest levels in a year.

The 10-year Treasury yield eased back on Tuesday, falling to 4.69 per cent from 4.72 per cent late Monday. But it remains well above its 3.97 per cent level from before the war with Iran.

On Wall Street, On Holding dropped 20.3 per cent even though the Swiss sneaker company reported a better profit for the latest quarter than analysts expected. Its sales forecast though fell short of analysts’ expectations, while saying it does not want to slash prices to drum up more sales.

Companies broadly have been blowing past analysts’ forecasts, which Wall Street loves because stock prices tend to follow the path of corporate profits over the long term. Earnings per share for S&P 500 companies are on track to be 50 per cent higher than a year earlier, according to FactSet, and that’s a big reason US stocks have been setting records recently despite worries about expensive oil, high inflation and other challenges.

In other international markets, indexes were mixed in Europe and Asia. Hong Kong’s Hang Seng fell 1.1 per cent for one of the world’s bigger moves.

with AP. Bloomberg

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