Global markets were mixed overnight, with US Markets (S&P 500 Index +3.0%) surging higher after the Fed’s decision.
The Fed rose their base interest rate up +50 basis points which came aa no surprise – and marked its first 50-point hike since 2000 following the onset of the dot com bubble. Markets were initially worried about the possibility of a 75-point rate hike in June July which have now been ruled out by the Fed. Jerome Powell stating that if required to they would move in 50-point increase over the next couple meetings and would do what it takes to bring inflation down.
Starting June 1, the Fed plan to reduce their balance sheet and the plan will see $30 billion of Treasuries and $17.5 billion on mortgage-backed securities roll off. After three months, the cap for Treasuries will increase to $60 billion and $35 billion for mortgages.
The moves are set in place to try and achieve a soft-landing for the economy (rather than falling into recession), with the Fed stating the economy is still well placed to handle a tighter monetary policy The slight dovishness of the Fed relative to aggressive market expectations saw gains across the board with all sectors in the green, with energy and tech shares leading gains.
Most sectors traded higher, led by energy and financials, while defensive sectors like real estate and healthcare performed well. Starbucks and Airbnb, which were already higher earlier in the day after better-than-expected quarterly reports, surged 9.8% and 7.7%, respectively. Lift slumped -30% after issuing a disappointing guidance due to higher driver incentive costs, the news dragging Uber down -4.4%.
European markets (Stoxx 600 index, -1.1%) fell on disappointing earnings and jitters heading into the Fed’s decision.
Australia and New Zealand Banking Group (ANZ:ASX / ANZ:NZX)
Australia and New Zealand Banking Group (ANZ) shares rose +0.4% yesterday after its 2022 half year result came in better than expected.
Cash earnings from continuing operations came in at $3.113 billion, despite falling -3% from the most recent half (2021 second half). The beat came as bad and doubtful debt was less than expected and net interest rate margins fell less than expected, and that ANZ guided improving margins for the second half.
ANZ announced a 72 cents per share dividend and have completed its recent $1.5 billion capital return.
We remain BUY rated on ANZ as a benefactor of rising interest rates.
Australia & New Zealand Market Movers
The Australian market was down yesterday (ASX200 index -0.2%) as investors braced for the Fed’s interest rate decision.
Most sectors traded lower but were partially offset by gains for energy and financials. Real estate was the worst performing as it extended its losses, not only due to rising interest rates would impact valuation but lift borrowing costs significantly.
Flight Centre sunk -6.7%, after the company warned despite a pickup in demand it expects a -$225m operating loss (EBITDA) for the year ending June, and that the month of March delivered a positive earnings (EBITDA) of $8m.
JB Hi-Fi fell -4.8% despite a strong third quarter update as the company failed to provide any guidance due to uncertainty on May/June demand and supply.
The New Zealand market (NZX 50 index) was flat on Wednesday as investors brace for the Fed’s interest rate decision.
PGG Wrightson rose +6.3% after upgrading its earnings (EBITDA) guidance from $62m to $66m on the back of robust grass growth across the North Island and Canterbury over the last quarter.
A2 Milk (-2.9%) and is supplier Synlait (-3.2%) were both heavily hit heading into the rate decision as concerns over China’s lockdown weighs down on the stock.
3 Things Markets will be Watching this Week
- Geopolitical risks remain elevated with the Russia/Ukraine conflict.
- Central bank interest rate decision from RBA and the Fed, and employment data in New Zealand
- US earnings continues, locally earnings seasons beings starting with the banks ANZ, Macquarie and NAB are all due to report this week