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The Fed’s 75 bps rate hike powers tech-led Wall Street rally, with Asian markets to take the ride

Stocks rally

Wall Street rose sharply after the Fed increased its interest rate by another 75 basis points as expected, with the S&P 500 finishing above 4,000 for the first time since 8 June. The Fed Chair Jerome Powell indicates that a similar move could be in September, suggesting that the extent of hawkishness for rate hikes may have come to a peak, which boosted the tech shares. Microsoft and Alphabet rose 6.6% and 7.7% respectively, despite weakened earnings as both companies see positive outlooks. Meta Platforms Inc.’s second quarter results were also disappointing, and the shares dipped 4% in after-hours trading, which was still resilient considering how much the social media’s shares crashed for the first half.

Investors will be eyeing the US second quarter GDP data tonight and the last two mega-cap companies, Apple and Amazon’s earnings reports due tomorrow morning. The global economic outlook is still not in a good shape but at least for now, the Fed’s less aggressive tone will be possibly supporting the rebounding trend till the September meeting.

AU and NZ day ahead

Following the broad optimism, both Australia and New Zealand markets are set to take the Wall Street’s tailwind in today’s session. The technology stocks may outperform as usually these sectors start to bottom towards the end of a rate hike cycle. At the same time, both Australian dollar and New Zealand dollar strengthened against the US dollar because the falls in bond yields pressed the greenbacks, along with a rally in the commodity markets.

The S&P/ASX 200 is set to open higher, as the SPI futures rose 0.77%. The second quarter CPI data printed at 6.1%, lower than expected but elevated from the first quarter, which may keep the RBA’s pace on rate hike of a 50 bps in the August meeting. Today’s local economic data will the import prices for the second quarter and retail sales for June, but will not have a major impact on the financial markets.

The S&P/NZX 50 was up 0.78% in the first half hour of trading amid a broad-based rally in major stocks. Meridian energy jumped 2% on the announcement that owners of the Tiwai Point may extend the contract with the company after the current term to the end of 2024.

US

The Dow Jones Industrial Average rose 1.38%, the S&P 500 was up 2.61%, and Nasdaq jumped 4.06%. 

All the 11 sectors finished higher, with consumer discretionary, technology, and communication services leading gains, up between 4-5%. The mega-caps finished strongly. Apple rose 3.5%, Amazon was up 5.5%, and Tesla Motors advanced 6.4%.

Despite a miss on the earnings expectations, both Alphabet and Microsoft’s shares rose on positive guidance. The Fed’s less aggressive tone also added to the optimism. Meta Platforms missed on both earnings and revenue estimates, but the daily active users increased more than forecasted. The company issued the weak third quarter guidance, with the revenue expectation at between $26 billion to $28.5 billion, short of analyst estimate of $30.5 billion.

The major companies’ performance overnight (28 July 2022)

Source: CMC Markets NG

Europe

The European markets were also strong on US earning optimism. The FTSE100 rose to the highest level in 6 weeks.

The Stoxx 50 (+0.91%), FTSE 100 (+0.57%), DAX (+0.53%), CAC 40 (+0.75%). 

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Commodities

The commodity markets jumped as the US dollar fell after the Fed meeting. Broad risk-on sentiment lifted oil and metals prices. Gas and wheat prices slid to due to less fears over a recession scenario.  

WTI: US$98.12 per barrel (+3.31%), Brent: US$107.42 per barrel (+2.89%), Natural Gas: US$8.69 per MMBtu (-3.40%)

COMEX Gold futures: US$1,751.90 per ounce (+0.93%), COMEX Silver futures: US$19.05 per ounce (+2.75%), Copper futures: US$3.47 per ounce (+2.60%)

Wheat: US$789.25 per bushel (-1.80%), Soybean: US$1,411.00 per bushel (+1.97%), Corn: US$604.25 per bushel (+0.58%).

Currencies

The US dollar weakened on a less aggressive Fed’s tone on rate hikes. The dollar index slid 0. 66%, to 106.34. The Eurodollar spiked 0.8% against the greenback to 1.02. EUR/USD has been in a range movement between 1.01-1.02 since 19 July. The upside moment is slowly building up, with the rate now topping the 20-day moving average. All the other major currencies also strengthened against the USD.

Treasuries

The US bond yields fell on the Fed’s decision, while the European yields rose as the ECB now looks more aggressive on rate hikes in comparison. Both Australian and New Zealand government bond yields were also lower.

US 10-year: 2.78%, US 2-year: 2.98%.

Germany bund 10-year: 0.94%, UK gilt 10-year: 1.95%.

Australia 10-year: 3.24%, NZ 10-year: 3.49%.

Cryptocurrencies

Major cryptocurrencies rebounded sharply amid broad risk on sentiment.

(See below prices at AEST 8:31 am according to Coinmarketcap.com)

Bitcoin: US$22,829 (+8.16%)

Ethereum: US$1,628 (+15.85%)


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