U.S. equities surged on Wednesday after the Federal Reserve raised rates by +0.75% as expected, while Jerome Powell said the central bank will slow the pace of increases at one point, adding officials would refrain from offering “clear guidance” on the size of their next move.
In the post meeting press conference, Powell noted “While another unusually large increase could be appropriate at our next meeting,” that will depend on the data between now and then. Those comments sparked a rally in U.S. stocks will Treasury yields tumbling along with the USD. On the decision, Bloomberg economists noted “While many are worried that the economy is verging on recession, Fed officials see the glass as half full, with the strong labor market allowing the economy to withstand rapid monetary tightening”. The committee reiterated it “is is strongly committed to returning inflation to its 2% objective….and anticipates that ongoing increases in the target range will be appropriate”. Powell also said he did not believe the economy was in a recession, citing a “very strong labour market” while acknowledging that recent indicators of spending and production have softened. Traders expect a further 1% of rate increase before the end of the year, with rates expected to peak at +3.3% and continue to price in rate cuts from March 2023.
The S&P500 rose +2.62% with 86% of stocks rising and all sectors positive led by communications +5.11% and technology +4.29%. The Dow Jones also rose +1.37%, as did the Nasdaq Composite +4.06%, Russell 2000 +2.55% and the VIX fell -5.72% to 22.98. The 2-year Treasury yield declined -7.7 basis points to 2.974% along with the 10-year yield by -2.9 basis points while the 30-year yield was +3.8 basis points higher, and the U.S. dollar index weakened -0.67%. In economic data, U.S. durable goods orders excluding transport were slightly better than expected in June, rising by +0.3% compared to estimates of +0.2% suggesting spending remains robust for now. In focus tonight is the first estimates of U.S. Q2 GDP forecast to show the economy expanded at a +0.5% annualised pace from -1.6% in the first quarter.
European equities were higher ahead of the Federal Reserves policy decision, with technology boosted from a rally in the Nasdaq 100 following a bullish forecast from Microsoft and resilient ad sales from Alphabet after the market close on Tuesday. The Euro Stoxx 600 rose +0.47% along with the DAX +0.53%, CAC +0.75% and FTSE100 +0.57%. UniCredit SpA jumped +8.6% as second-quarter profit almost doubled analyst expectations. Reckitt Benckiser Group Plc advanced +3.15% after raising its sales forecast as the company weathered soaring inflation and benefited from an infant formula shortage in the US. The Euro was +0.80% higher along with the Pound +1.07% ahead of the final reading of Eurozone consumer confidence out tonight expected to a show a further decline.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set to open higher this morning with ASX200 futures +54 points higher or +0.80% at 6,777. The index rose +0.23% on Wednesday with a +1.04% gain in financials offsetting a -1.21% decline in materials. Equities bounced from lows after inflation data for Q2 was slightly lower than forecasts, rising +1.8% over the quarter and +6.1% over 12 months compared to estimates of +1.9% and +6.3%. Still, the trimmed mean showed broad inflation pressures remained rising +4.9% over the year and +1.5% over the quarter, mostly in line with estimates. Buy now, pay later player Sezzle rocketed 95.8 per cent on Wednesday to finish the day in a trading halt as the market operator ASX sought an explanation for the extraordinary price action with Zip also climbing +20.1%. The Australian dollar is +0.81% higher overnight at 0.6995 ahead of the ANZ business confidence survey for July at 11:00 AEDT followed by retail sales for June at 11:30 AEDT forecast to rise +0.5% over the month compared with +0.9% in May.
Oil prices surged on expectations an eventual slowing in rate increases by the Federal Reserve will spur demand. Both WTI and Brent crude climbed +3.35% and +2.84% respectively to US$98.16 and US$107.37 a barrel. Iron ore futures in Singapore edged +0.24% higher on Wednesday and are a further +1.34% higher at US$113.9 this morning with copper futures in the U.S. also +1.39% higher. Gold rose +1.02% to US$1,734 benefiting from a weaker USD and lower real yields, silver also rose +2.52% to US$19.10 and Bitcoin climbed +8.68% to US$22,807.
Economic data:
- Australian Business Confidence (MoM Jul) 11:00
- Australian Retail Sales (MoM Jun) 11:30
- Eurozone Consumer Confidence (MoM Jul) 19:00
- U.S. Initial Jobless Claims (July 23rd) 22:30
- U.S. GDP (QoQ Q2) 22:30
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
