ASX set to slide, Wall Street slips after weak update on the US economy

The US stock market edged back from its all-time high following the latest report on the economy to come in surprisingly weak, this time about how much shoppers are spending at retailers. Such data could keep interest rates low, which is something Wall Street loves, but it also raises the risk of a slowing economy when inflation is still high.

The S&P 500 slipped 0.2 per cent from its record set the day before. The Dow Jones Industrial Average dipped 107 points, or 0.2 per cent, and the Nasdaq composite sank 0.3 per cent.

The Australian sharemarket is set to decline, with futures on Saturday pointing to a fall of 33 points, or 0.4 per cent, at the open. The Australia dollar was trading at US70.79¢ at 5.16am AEST.

National Australia Bank chief executive Andrew Irvine says higher interest rates, the government’s housing tax changes, and fallout from the war in Iran are creating “challenges and uncertainties” for the bank’s clients, after it reported a $1.9 billion profit for the June quarter.

NAB on Monday said its unaudited profits of $1.9 billion for the quarter had increased by 32 per cent compared with the average for the March half, when the bank’s profits were dragged sharply lower by accounting changes.

Irvine said that excluding the impact of large notable items from the previous half, its profits were up 2 per cent, and this was mainly because of lower charges for bad loans.

US stocks gave up modest gains from early in the morning after oil prices swung higher. The price for a barrel of Brent crude rose 1.7 per cent to $US88.52 as uncertainty continues about when the war with Iran will allow oil tankers to freely exit the Persian Gulf again.

Also raising uncertainty was a report showing shoppers spent less at US retailers last month than the month before. That surprised economists, who were forecasting another month of growth.

On the bright side for financial markets, such a pullback in spending could take pressure off inflation. Inflation remains much higher than anyone would like, but reports earlier this week suggested the pace of increases in prices is decelerating.

If inflation keeps trending that way, it could encourage the Federal Reserve to hold off on hikes to interest rates. Higher rates would help keep a lid on inflation, but they do so by intentionally slowing the economy and making it more expensive for everyone to borrow money.

The downside of such data, including last week’s surprisingly weak report on the US job market, is that they raise the risk of a slowing economy. The Fed has no good tool to fix both a stagnating economy and high inflation at the same time, which is why what’s called “stagflation” is seen as a worst-case scenario.

Some on Wall Street cautioned against overreacting to the weak data on US retail sales, even if it was broad-based.