The S&P 500 index has ended lower after fluctuating for much of the session as investors digested hotter than expected US inflation data which fuelled fears that the Federal Reserve could raise key interest rates by as much as 100 basis points later this month.
All three major US stock indexes bounced off lows reached early in the day but late on Wednesday, Australia's benchmark S&P/ASX200 index finished up 15.3 points, 0.23 per cent, to 6,621.6 on Wednesday, while the All Ordinaries closed up 21 points, or 0.31 per cent, at 6,807.8.
The Australian dollar recovered slightly after hitting two-year low against its surging US counterpart. It was buying 67.54 US cents, from 67.29 US cents on Tuesday.
Year-on-year US consumer price growth accelerated to a scorching 9.1 per cent, the hottest reading since November 1981, driven by an 11.2 per cent monthly spike in petrol prices.
InvestSMART chief market strategist Evan Lucas told Ausbiz TV the Australian market was holding its breath:
"It's not just what's going on with the (US) inflation data, which is going to be high (when it's released on Wednesday night AEST)"
"I also think they're waiting to see what goes on with earnings season.
US earnings season begins on Thursday night, Australia time, with JPMorgan and Morgan Stanley reporting followed by construction companies. Mr Lucas said:
"The inflation story for me is actually how companies start to forward-guide, and what kind of inflation those kind of companies are feeling."
Stripping away volatile food and energy prices, which have abated since the report's survey period, core CPI cooled down to an annual rate of 5.9 per cent. Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky, said:
"You would expect the CPI (report) that we saw would be a big risk-off event but the market has shrugged.
"(Investors) were already expecting a very hawkish Fed and I don't think this affects much except uncertainty and that has something to do with why markets aren't selling off today."
The report raised odds that the Federal Reserve will raise interest rates even more than the 75 basis points previously expected.
Traders of futures tied to the Fed funds target rate have now priced in more than a 50 per cent probability of a 100 basis point hike at the conclusion of its policy meeting later this month.
"If the Fed looks past the headline number, they'll see commodity prices have already begun to soften a bit" since the CPI survey period, Mayfield said, adding that a 100-basis-point rate hike based on the June CPI report could put central bank policy "behind the curve".
The question over whether the Fed's policy tightening could rein in inflation without tipping the economy into recession appears to be shifting to how severe the downturn is likely to be.
The S&P 500 lost 17.70 points, or 0.46 per cent, to end at 3,801.10 points, while the Nasdaq Composite lost 18.87 points, or 0.17 per cent, to 11,245.86 and the Dow Jones Industrial Average fell 214.73 points, or 0.69 per cent, to 30,766.60.
The second-quarter earnings season will hit full stride on Thursday, when JPMorgan Chase & Co and Morgan Stanley are due to post results, followed by Citigroup and Wells Fargo & Co on Friday.
As of last Friday, analysts saw aggregate annual S&P earnings growth of 5.7 per cent for the April to June period, down from the 6.8 per cent forecast at the beginning of the quarter, according to Refinitiv.
Shares of Delta Air Lines slid after the carrier's second-quarter earnings missed expectations although Chief Executive Ed Bastian said strong travel demand will result in "meaningful" full-year profit.
The broader S&P 1500 Airlines index also declined.
Tesla Inc and chipmakers also gained ground.
Twitter Inc shares jumped after Hindenburg Research said it had taken a significant long position in company's stock.