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US stocks jump on the Fed’s 75 bps hike, Asian markets to follow the rally

Jerome Powell

Asian equity markets are set to follow Wall Street’s relief rally after the Fed launched an anticipated 75-basis points rate hike, which is the largest interest increase in 28 years. The Fed Chair Jerome Powell pledged not to stop the aggressive tightening approach until bringing inflation back to the target level, indicating a possible 50-75 bps increase to come in July while saying the outsized rate hike was unusual for the reserve bank.

Despite jumps in the broad equity markets, the high economic uncertainty remains at the back of a deteriorated growth outlook, with the Fed slashing the GDP growth to 1.7% from 2.8%. In addition, the Michigan consumer sentiment plunged to a record low in June that was printed in late May.  

Overnight, the ECB held an emergency meeting to discuss measures to support the high indebted members by narrowing the bond yield spreads between nations, which lifted the European market’s sentiment ahead of the Fed’s move.

The better-than-expected Chinese economic data also added to the rebounding optimism, with both HSI and CSI 300 up for the second straight trading day. China’s industrial output came in much higher than forecast in May, a 0.7% growth vs. -0.1% estimated year on year, supported by its coal production. The Chinese mainland benchmark index, Shanghai 2000, rose 15% from the year low in late April.

AU and NZ day ahead

ASX is set to open slightly higher as the SPI futures rose 0.24%. We may see some green color in the local markets after a four-consecutive-day drop due to surging bond yields and the broad risk-off sentiment. The minimum wage increase will certainly not help to ease inflation but slow employment and translate the cost to consumers. The bond market rout will not ease here just yet as a 75-basis points rate hike by the RBA might be on the table now. The bright side is that China’s rebounding optimism could lift the near-term sentiment, with the Australian employment data for May in focus today.

The S&P/NZX 50 rose 0.46% in the first hour of trading, supported by the relief rally in the global markets on the Fed’s decision. The New Zealand dollar rebounded against the US dollar but fell against Aussie, Eurodollar, and Sterling. At the back of the rapidly rising rates, tourism may be the sector that could weather the storm with increasing traveling demands. Air NZ was up 2.71% at the open, to NZ$57 cents, which could be bottoming after the share price hit the rights offer price at NZ$53 cents this week. Sky Network Television has withdrawn from the Mediaworks takeover deal, citing to return capital to shareholders. The company’s share price jumped 9% at the open.

US

The Dow Jones Industrial Average was up 1%, the S&P 500 rose 1.46%, and Nasdaq jumped 2.5%. 

Growth sectors regained the ground amid dip-buys, with consumer discretionary, technology, and communication services all up between 2-3%. Big techs, including Apple, Microsoft, Alphabet, Meta Platforms, Amazon, and Tesla all rose between 2-6%. 

Energy is the only sector that closed in red due to a slump in the oil price, suggesting investment funds rotate from the fuel-associated stocks to the tech-relating sectors.

On the economic front, the US retail sales index fell 0.3% in May unexpectedly due to rampant inflation and supply shortages. The core retail sales excluding automobiles rose 0.5%, also short of estimated at 0.7%.

Europe

European stocks also rebounded on the ECB’s emergency meeting. The Stoxx 50 (+1.64%), FTSE 100 (+1.20%), DAX (+1.36%), CAC 40 (+1.35%). Read more

Commodities

Crude oil prices slid for the second trading day on the Fed’s outsized rate hike and OPEC’s downgrade of the demand outlook for 2023. Signs of deteriorated global consumer sentiment have capped the surge in fuel prices. The US crude inventory rose 2 million barrels during the week ending June 10, much higher than expected a draw of 2.3 million.

WTI: US$115.86 (-2.7%), Brent: US$118.51 (-2.20%), Natural Gas: US$7.55 (+1.75%)

Precious metals rose as bond yields slid and the US dollar softened.

COMEX Gold futures: US$1, 835.5 (+0.87%), COMEX Silver futures: US$21.66(+1.44%), Copper futures: US$4.17(+0.23%)

Agricultural products fell on the Fed’s decision.

Wheat: US$1, 063.50 (-1.75%), Soybean: US$1,523.50 (-0.11%), Corn: US$721.00 (-0 03%).

Currencies

US dollar fell as bond yields slid on the Fed’s 75 bps rate hike. The risk sentiment gets respite when the anticipated Fed’s move removes uncertainties. The ECB’s address of the union’s debts also sent the Eurodollar higher. All the other currencies also climbed against the greenback.

(See the below FX rates at EAST 8:27 am, Bloomberg)

US dollar index: 104.61 (-0.69%)

EUR/USD: 1.0449

GBP/USD: 1.2116

USD/JPY: 134.15

USD/CHF: 0.9950

USD/CAD: 1.2887

AUD/USD: 0.7004

NZD/USD: 0.6283

Treasuries

Bond yields fell in general after the FOMC meeting as probably it is the peak of hawkishness that the Fed could have rolled out. The inflation may take a hit by the softened demands, or worse, an economic recession.

US 10-year: 3.284%, US 2-year: 3.21%.

Germany bund 10-year: 1.634%, UK gilt 10-year: 2.463%.

Australia 10-year: 4.01%, NZ 10-year: 4.177%.

Cryptocurrencies

Crypto markets stabilized at the 18-month low as risk sentiment recovered from the sharp selloff, supported by the broad equity markets’ comeback.

(See below prices at AEST 8:44 am according to Coinmarketcap.com)

Bitcoin: US$22,573 (+4.85%)

Ethereum: US$1,224.73 (+4.23%)

Cardano: US$0.531 (+13.38%)

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