The Fed Minutes of the February FOMC meeting were released early this morning, Sydney time, and they showed that Fed officials continue to anticipate further increases in interest rates, in order to bring inflation down to their 2% target. Swaps markets are currently pricing in 25 basis point hikes at the upcoming March, May, and June meetings, while the expectations for the peak in rates have shifted to 5.36%. As a reminder, the current Fed Funds rate in the US stands at 4.75%, the highest since late 2007.
United States
US equities were generally weaker on the news, with the major indices all selling off post the minutes releases, before recovering somewhat into the close. By the end of the trading session, the S&P500 was 0.16% lower at 3,991.05, the Dow Jones Industrials was down 0.26%, while the Nasdaq100, closed slightly higher, gaining 0.05% to finish at 12,066.27.
From a technical perspective, the S&P500 has been correcting lower throughout the month of February following a strong rally in January. As can be seen on the chart below, prices are currently testing the rising trendline drawn from the major lows in October. A break below this trendline would open up the December lows in the region of 3800 to a retest. However, if prices manage to hold at current levels are reverse back to the upside, the formation of another higher low would be a positive development.
S&P500 – Daily Chart
Europe
European equities were softer on Wednesday, with the Euro Stoxx 50 declining 0.18%, led by the financials sector which fell 1.38%, while consumer staples, rallied 1.30%. The German Dax was flat, while in the UK, the FTSE100 fell 0.59% to close at 7,930.63.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
Australian stocks were weaker on Wednesday, with the ASX200 declining 21.80 points (-0.30%) to close at 7,314.50, while ASX SPI200 futures are down a further 20 points in overnight trading, suggesting a slightly weaker start to trade on Thursday. At the stock level, the big movers to the downside were Domino’s Pizza Enterprises (DMP) which fell 25.77% following their earnings release, while News Corp (NWS) fell 9.60%, following news that the Company’s attempt to claw back approximately 35 million Pounds in value-added tax (VAT) was rejected by the UK’s Supreme Court. Regarding DMP, investors dumped the stock following the release of the Company’s half-year financial earnings, which showed that higher inflation is having a detrimental impact on earnings. Underlying EBIT dropped 21% year-on-year, on a 4.3% contraction in revenues, while the dividend was cut from $0.884 to $0.674. The top gainers from the ASX200 were Origin Energy (ORG) and A2 Milk (A2M), which gained 12.70% and 6.25% respectively.
In corporate news this morning, Qantas (QAN) has released positive results, showing a record half-year profit, with net income of $681 million for the period, compared to a $456 million loss a year earlier.
Commodities
Regarding commodity markets, and oil prices were weaker on Wednesday, with WTI Crude and Brent Crude falling by 3.22% and 3.09% respectively. Spot gold prices continue to correct from recent highs, dipping US$9.50 to close at US$1,825.61 an oz, while spot silver shed 1.50%, and copper declined 1.17%. Grain prices were weaker across the board, while soft commodities were largely firmer, led by coffee, which rallied 2.60%.
Economic Data
United States: FOMC Minutes 06:00 am
Australia: RBA Cagliarini Speech 4:15pm
Euro Ares: Core Inflation Rate YoY (Jan) 9:00 pm
This article was written by Oliver Gordon, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
