Risky assets jump on expected Fed rate hike. The dollar is falling. ASX ready to open higher.

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AAsian stock markets are set to open higher on a jump in US stocks following an expected Fed rate hike of 50 basis points. Risk assets across the board rallied as Fed decisions and ensuing statements were fully in line with expectations, even slightly less aggressive than market forecasts. The FOMC committee has also drawn up a plan to begin its US$9 trillion balance sheet reduction from June, with a reduction of US$47.5 billion in June, and an increase to US$95 billion by month after 3 months. Fed Chairman Jerome Powell said a 75 basis point hike “is not something the committee is actively considering.” He also added an approach to a “soft” landing for the economy. Markets are now forecasting a 50 basis point rate hike at each of the Fed’s meetings for the rest of the year, reaching the rate of benchmark of 3-3.25% by the end of the year.

Australia and New Zealand on the eve

SPI futures rose 0.43%, indicating a higher open on the ASX. The big banks all jumped after the rate hike after an RBA-induced increase in mortgage rates. Major lenders could continue to benefit from the rising rate environment. The mining and energy sectors should also be resilient following the general risk sentiment.

NAB exceeded expectations with the release of HY1FY22 results with net profit of $3.5 billion (+10.7%) and revenue of $8.8 billion (+4.6%) per compared to the same period last year. Australia’s leading merchant bank has seen strong demand for business and personal loans amid the economic recovery. A fully franked interim dividend of 73c per share has been announced.

The NZX 50 opened 0.48% higher. Air New Zealand shares fell 6% to NZ$0.825 after trading halted on Wednesday. The local flag carrier has completed building the backlog, with a total of NZ$1.2 billion raised under the 2-for-1 pro rata rights offering. But the share price is still trading at a premium given the rights offer price of NZ 52 cents.

US and European stock markets overnight

The Dow Jones Industrial Average rose 2.81%, the S&P 500 rose 2.99%, the Nasdaq jumped 3.19% and the small cap index, Russell 2000, rose 2.82 %.
All 11 sectors of the S&P 500 closed in the green, with growth stocks leading the gains. Mega-caps rose strongly with Apple, Alphabet and Tesla up more than 4%. Meta Platforms Inc. rose 5.3%. Advanced Micro Devices jumped 9% after the chipmaker beat profit expectations.

Bank stocks were also strong on Powell’s “soft landing” economic narrative. All major lenders, including JPMorgan Chase, Wells Fargo, Citigroup Inc and Goldman Sachs, rose 2-5%.

Energy stocks rose following the spike in oil prices triggered by the EU’s proposal to ban Russian oil altogether. Occidental rose 4% and Devon Energy 5.5%.

Major European indices, however, fell on risky trades as major exchanges closed ahead of the announcement. Additionally, the EU oil embargo on Russia weighed on sentiment. The Stoxx 50 was down 0.96%, the CAC 40 was down 1.24%, the DAX was down 0.49% and the FTSE 100 was down 0.90%.

Merchandise

Crude oil prices have soared as the EU proposes a complete ban on oil exports from Russia by the end of the year despite exemptions demanded by Slovakia and Hungary. WTI crude futures rose 5.03% to US$107.57 a barrel, and Brent crude futures rose 4.81% to US$110.02 a barrel.

The price of natural gas rose for the fourth straight trading day, up 5.03%, to US$8.35 per MMBtu as a full ban on gas exports from Russia is also on the table in the EU proposal. The price of natural gas hit a new high in December 2008.

Precious metals rose on a weaker dollar. NYMEX gold futures rose 0.68% to US$1,883.60 an ounce after hitting an intraday high at $1,889, short-term pivot resistance. Silver rose 1.57% to US$23.02 an ounce after falling to US$22.12, near key short-term support around US$22.00.

Currencies

The USD index fell from a pandemic high, down 0.91%, to 102.57 as the Fed’s forecast for the pace of rate hikes was not as aggressive as previously expected.

The Australian dollar strengthened strongly for the second day, supported by a weaker dollar and a larger than expected rate hike of 0.25% by the RBA. AUD/USD gained 170 points (+2.2%) to 0.7261. The kiwi dollar gained 1% against the greenback, to 0.6547. The eurodollar strengthened 0.97% against the dollar, to 1.0629%.

GBP/USD advanced 138 points (+1.03%) to 1.2638 ahead of the BOE meeting, where the central bank is expected to continue raising the key rate by 0.25% but could become less aggressive in due to the slowdown in the local economy due to geopolitical tensions.

All other currencies also appreciated against the USD.

treasures

Bond yields fell due to the Fed’s less aggressive monetary policy tightening approach. The 10-year US Treasury yield fell to 2.93% after rising above 3% on Monday, while the 2-year Treasury yield plummeted to 2.50% from 2.78% the day before. However, the 30-year bond yield remained stable at 3.03%.

Conversely, the yield on Australian 10-year bonds continued to climb, adding 14 points to 3.54%, thanks to the RBA’s hawkish rate hike. The yield on New Zealand 10-year bonds remained as high as 3.78%, the highest since June 2015.

Cryptocurrencies

Crypto markets surged as risk sentiment was boosted by the Fed’s expected tightening approach, along with a slew of positive news. ApeCoin jumped 10% after Tesla CEO Elon Musk changed his Twitter profile picture to one featuring a collection of a Bored Ape Yacht Club NFT. Additionally, the French stock market regulator, AMF, has approved Binance as a registered operator to provide its crypto exchange services in France, which is the first EU country to allow this. form of digital asset trading.

Bitcoin jumped 5.8% to US$39,775 and Ethereum was up 6.65% to US$2,945.97 in the past 24 hours. The cap for the entire cryptocurrency market increased by 5.84%, to US$1.80 trillion.

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