US markets (S&P 500 Index -1.7%) gave up early gains on Wednesday after the US Federal Reserve raised rates by 75-basis-points to the 3%-3.25% range during its September meeting. All sectors closed the day in the red, led by Consumer Discretionary (-2.4%) and Communication Services (-2.3%).
While the Fed hiked by 0.75% (with some in the market expecting 1.0%), what spooked markets was Chair Powell’s intention to hike until it hits an interest rate of 4.6% in 2023, saying the Fed doesn’t expect to enact rate cuts until 2024. This is essentially keeping interest rates “higher for longer”, and futures markets are now pricing in another +0.69%s in November & +0.49% at the December Fed meetings.
While stocks struggled, bond yields and the US dollar hit fresh new highs. The yield on the 2-year Treasury (+0.1%) hit above 4% for the first time since 2007 while the US dollar index (+1.0%) hit a new 20-year high.
European markets (Stoxx 600 Index, +0.9%) were cautiously higher on Wednesday, supported by Energy (+1.6%) stocks. The euro (-1.3%) and pound (-0.9%) both slipped much lower, with the latter touching a fresh 37-year low against the dollar.
Air New Zealand (AIR: NZX)
Air New Zealand (+7.4%) share price soared on Wednesday to $0.73 following a guidance update, rising as much as 9.5% intraday.
According to the guidance update, Air New Zealand experienced strong sales in the first three months of its 2023 financial year and is now operating at 70% of its pre-pandemic capacity.
Assuming no change in the price of jet fuel, the company now expects earnings for the first half of financial 2023 to be between $200 million and $275 million.
We remain Sell rated on Air NZ. Air NZ shares may appear extremely cheap on a nominal level, but keep in mind the highly dilutive 2-for-1 capital raise increased the number of shares three-fold which means a rebound to pre-covid average share price of ~$2.50 is now $0.83.
Australian & New Zealand Market Movers
The Australian market (ASX 200 Index, -1.6%) dipped on Wednesday with Materials (-2.6%) and Utilities (-2.3%) performing the worst.
A bright spot in the general market drag, Whitehaven Coal (+3.8%) shares surged after it floated a plan to buy back up 25% of issued shares to return value in this period of high coal prices. Viva Energy (+4.6%) and New Hope (3.7%) also booked gains on the day.
The Australian dollar (-0.84%) has shed more than 2 cents in one week and fell to its lowest level in two years against the US dollar to 0.6639 on Wednesday.
The New Zealand market (NZX 50 Index, -0.6%) fell despite the positivity that Air New Zealand (+7.4%) injected into the market. Real Estate (-1.3%) and Consumer Staples (-1.3%) were among the worst performers.
Energy (+0.7%) performed the best, with Mercury NZ (+0.4%) climbing higher in the lead up to its annual meeting being held this morning.
The NZ dollar (-0.52%) slipped even lower to 0.5859, after hitting 28-month lows yesterday.
What Markets will be Watching this Week (UTC –4)
Monday
Japan Inflation Rate YoY (AUG)
Australia RBA Meeting Minutes
Tuesday
Canada Inflation Rate YoY (AUG)
Wednesday
US Fed Interest Rate Decision
BoJ Interest Rate Decision
Thursday
BoE Interest Rate Decision
Friday
US Fed Chair Powell Speech
