The ASX had a flat day following news that the US Federal Reserve has done it again, lifting rates for the ninth consecutive meeting, by 0.25%.
Wall Street was unfazed by the news when it first broke but finished the day lower following Fed chair Jerome Powell’s unrelenting hawkishness in the face of the recent collapse of two financial institutions – Silicon Valley Bank and Signature Bank – which represent the most severe banking crisis since the GFC in 2008.
Powell warned that tightening was unlikely to ease after the most recent hike and that the prospect of a cut was further away than the end of 2023.
Oil slumped on the comments as investors considered the complex supply and demand equation on the horizon, including the threat of recession, ongoing Russian production and banking precariousness, with crude undergoing the steepest first-quarter drop since the advent of the demand-killing pandemic.
This sentiment was countered by signs of a recovering appetite for energy in China as it continues to re-open after its COVID-zero experiment last year.
As for the ASX, all sectors were down after lunch, with Information Technology (-0.93%) and Real Estate (-1.05%), coming off worst, and Utilities nearly breaking even (-0.03%).
US equity markets
IG senior analyst Tony Sycamore said of the current US predicament:
While the Fed raised rates by 25bps to 4.75%-5.00% and left the median Dot unchanged at 5.125% as expected, Fed chair Powell sounded hawkish during the press conference noting he doesn’t “see rate cuts this year” and that the Fed is “committed to “restoring price stability”.
The tone of markets further soured as Treasury secretary Janet Yellen, speaking at the same time, said that the government was not considering “blanket” deposit insurance across the banking system, contradicting headlines from Tuesday and ensuring the continuation of a faulty two-tiered banking system.
It’s hard to believe that US officials could have found a more explosive mix to drop on markets after fighting the past fortnight to limit the fallout of recent banking stress. The KBW Bank Index fell 4.7%, while the glimpse of survival handed to First Republic Bank earlier in the week was snatched away as it fell 15.57%. Pac West Bancorp fell 17.12% to $10.12.
The S&P500 failure to confirm Tuesday’s break higher indicates a continuation of the choppy range trading conditions we have seen in recent months within a broad 4,200 -3,800 type range.
In other news
Last week there was another slew of data stolen by hackers, this time from non-bank lending institution Latitude Financial, which said that hackers had stolen the data of around 330,000 customers.
It confirmed that this included 103,000 identity documents, of which 97% related to drivers’ licences, less than 4% to passports and less than 1% to Medicare information.
The company said the numbers might grow, saying the situation remained active. Latitude offers insurance, loans and credit cards with retailers including Harvey Norman, David Jones, JB Hi-Fi and The Good Guys.
It seems that a sharp slowdown in housing construction and renovations is on the cards, according to the managing director of Australia’s largest brick-making company, Lindsay Partridge, who says that work arising from the tradie shortage backlog will come to an end in about six months.
Cost-of-living pressures and interest rate rises, also set to bite in around the same timeframe, will no doubt compound the slowdown.
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