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US stocks extend gains ahead of FOMC meeting, ASX set to open higher post rate hike

US Federal Reserve

Asian equity markets are set to open higher following a second straight day of rebounding in US stocks overnight. Major US indices finished higher after a seesaw session as risk-on sentiment recovered in the hope that the Fed will not shock the markets with greater-than-expected aggressive monetary tightening plans. It is expected to raise the funds rate by 0.50% and start shrinking its $9 trillion balance sheet by US$95 billion per month. Any further hawkish commentary could hurt risk sentiment and send jitters to the broader markets.

Hong Kong stock markets gained for the fourth consecutive trading day after the holiday break, thanks to Beijing’s efforts to stimulate the deteriorating economy due to Covid-related lockdowns. Both Alibaba Group and Tencent initially plunged 9% and 4.6% respectively, but soon recovered losses as investors assess a potential regulatory crackdown on the tech companies.

Australia and New Zealand day ahead

SPI futures were up 0.59%, pointing to a higher open on the ASX. The broader markets may take the tailwind of the US session in today’s trading despite a greater-than-expected rate hike by the RBA. The Reserve Bank rose the cash rate by 0.25%, indicating further imminent rate hikes are on the table due to inflation concerns. Bank stocks rose, benefiting from rising mortgage rates ahead of the major banks' half-year earnings reports. CBA was the first bank to pass on the full rate hike, followed by ANZ & Westpac, and NAB.

ANZ has a trading halt upon release of its earnings report this morning. Half-year earnings result in beat analysts' estimate, A$3.1 billion vs. A$3 billion expected, with a A$72 cents of dividend. This may see a price jump once trading resumes.

The NZX 50 rose 0.34% at the open. Air New Zealand (AIR) placed a trading halt as the company undertakes a shortfall bookbuild of ordinary shares attributable to unexercised rights in its rights offer, which could see a drop in its shares price when trading resumes on May 5. AIR’s share price closed at NZ$0.87 on 3 May. According to AIR’s announcement, a bookbuild of approximately 274 million shares was not taken up by eligible shareholders, out of 2.246 million that has been offered, in which a further NZ$71 million in oversubscriptions by eligible shareholders.

US and EU stocks

The US benchmark indices crept up for the second straight trading day ahead of the FOMC meeting as investors are digesting an expected rate hike by the Fed.

The Dow Jones Industry Average rose 0.2%, the S&P 500 was up 0.48%, the Nasdaq advanced 0.22% and the Russell 2000 gained 0.81%.

The cyclical stocks outperformed, with energy gaining 2.71% and financials up 1.27%, benefiting from a rising rates macro environment. Both JPMorgan Chase and Citigroup Inc were up more than 2%, while Wells Fargo and Goldman Sachs rose more than 1%. While the growth sectors (typically the mega-cap tech stocks) were mixed on the caution of the Fed's more aggressive plans of policy tightening. Apple, Alphabet, and Meta Platforms Inc were higher, while Microsoft and Amazon slid. 

On the earnings front, Devon Energy stocks jumped 9% on a four-fold beat on earnings because of the surging oil prices. Starbucks shares rose 1% in the after-hours trading on strong earnings reports. Both Advanced Micro Devices Inc. and Airbnb’s shares jumped more than 4% in extended trading hours due to better-than-expected Q1 results. Lyft shares plunged 26% in after-hours trading on weak guidance. The company expects revenue between $950 million and $1 billion, short of analysts’ expectation of $1.02 billion.

European major indices finished higher on broader optimism. The Stoxx 50 was up 0.77%, CAC 40 rose 0.79%, DAX advanced 0.72% and the FTSE 100 inched higher by 0.22%. 

Commodities

Crude oil prices stayed down 2% but still traded above the $100 mark. Traders remain cautious on mixed factors, comprising of China’s ongoing lockdowns, a potential EU ban on Russia’s oil, and the upcoming OPEC meeting. WTI crude futures slid 2.22%, to US$102.83 per barrel, and Brent futures were down 2%, to US$105.89 per barrel.

The natural gas price continued to rise, up 5.27%, to US$7.87 per MMBtu on accelerating geopolitical tensions as Russia halts supply to Poland, while EU members refuse to make payment in Rouble.

Precious metals recovered some losses from the previous day’s plunge as bond yields slid. NYMEX gold futures were up 0.16%, to US$1,866.50 per ounce. Silver was slightly down to US$22.59 per ounce.

Currencies

The USD index slid marginally but still consolidates above 103 as the Aussie dollar strengthened amid a greater-than-expected rate hike of 0.25% by the RBA, for the first time since 2010. AUD/USD rose 0.65%, to 0.7098. USD/CAD fell 0.31%, to 1.2840. USD/JPY was little changed just above 130. EUR/USD was flat at 1.0523, above the key support of 1.05.

Treasuries

Bond yields were slightly down from the previous day’s spike. The 10-year US Treasury yield was down to 2.98%, the 2-year Treasury yield rose to 2.78%. Both US 5-year and 30-year bond yields stayed above 3%, traded at 3.03% and 3.02% respectively.

The Australian 10-year bond yield surged further to 3.40% after the RBA’s rate hike, a fresh 8-year high. The New Zealand 10-year bond yield also jumped higher to 3.79%, also a new high since June 2015.

Cryptocurrencies

Leading cryptocurrencies fell in the last 24 hours. Bitcoin was down 2.14% to $US37,827 and Ethereum fell 2.59%, to US$2,786. Both Bitcoin and Ethereum fell more than 20% from their year highs at the start of April.  The whole market cap for Cryptocurrencies slid to US$1.71 trillion from US$1.73 trillion the previous day.

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