Global markets were higher overnight, as the US Market (S&P 500 index +1.5%) snapped its 5-day losing streak, even as the Fed maintains a tough stance to bring inflation down.
The Fed lifted its key interest rate by 75 basis points to 1.75% its largest hike since 1994. This was anticipated by the market given the hot inflation print last week. While this was a big jump, even with today’s gain the S&P 500 and NASDAQ are still down just over -8% over the last five sessions. The US central bank also guided that the July meeting would see an increase of 50 or 75 basis points. At the conclusion of its two-day policy meeting, the Federal Open Market Committee said in a statement it was
We think the market reaction illustrates how negative investor sentiment is right now. Fed officials also cut their outlook for 2022 economic growth, now anticipating just a 1.7% gain in GDP, down from 2.8% in March.
European markets (Stoxx 600 index +1.4%) gained, ending their 6-day losing streak following Wall street’s lead and as the European Central Bank announced a special meeting to address the current tumble in the bond market.
Auckland International Airport (AIA:NZX)
Auckland International Airport rose +1.4% yesterday after releasing promising monthly passenger growth, as border restrictions ease. For the month of April, passenger numbers grew +94% from the previous month, and passenger numbers for the month of May were +28% above that – the majority being short-haul travel routes Australia and Pacific Islands where restrictions have eased first.
Total travel volumes for the month of May were 38% of pre-covid levels, while domestic volumes are at ~72%.
While demand for travel is set to grow as travel restrictions ease, we are still HOLD rated on AIA. Despite being a quality infrastructure asset, AIA’s valuation still appears stretched and is prone to higher interest rates, meaning a share price recovery to above $8 per share (what AIA traded at for most of 2019) over the medium-term is unjustified in our view (even if tourism travel were to fully recover to pre-covid levels) due to the higher interest rate environment we are currently in.
Australia & New Zealand Market Movers
The Australian market fell again yesterday (ASX 200 index -1.3%) wiping out its 2021 gains as investors digest rapidly rising interest rates locally and an increase in the minimum wage.
The RBA announced they anticipate inflation in Australia is likely to get worse peaking at 7% at the end of the year indicating they would also become more aggressive on their rate hike path for the remainder of the year. This didn’t bode well as all sectors traded lower, with tech and real estate stocks both being most sensitive to rising interest rates leading losses.
The New Zealand market (NZX 50 Index) was flat yesterday as investors waited for the much-anticipated Fed interest rate decision.
Risk assets were generally weaker as well as those exposed to the economy and property market, while gains across more defensive blue-chip stocks supported gains.
3 Things Markets will be Watching this Week
- Geopolitical risks remain elevated given the Russia/Ukraine conflict.
- Central bank meetings dominate the week ahead with rate decisions due from the US Fed, Bank of England, and Bank of Japan.
- The latest CPI (inflation) data from the Eurozone is also due along with a range of housing data in the U.S and activity data in China. Locally, employment data in Australia and Q1 GDP in NZ are the highlights.