The ASX is higher today, following Wall St’s lead overnight.
This uplift has come off the back of positive words from Fed chair Jerome Powell who hinted at a slowdown of tightening.
The S&P/ASX200 gained 61.50 points or 0.84% to 7,345.70 and set a new 100-day high. Over the last five days, the index has gained 1.43% but is down 1.33% for the last year to date.
Top-performing stocks in this index are Ramelius Resources Ltd and Pinnacle Investment Management Group Ltd, up 9.94% and 7.62% respectively.
Ramelius was the beneficiary of a 1.1% gold rally after Powell’s speech.
Spot gold lasted traded at $US1778.07 per ounce, 8% higher than a month ago but still down 2.7% for the calendar year.
Gold prices have rallied over the last few weeks on a weaker US dollar and a potentially less hawkish Fed.
Looking at the sectors, Materials was the best performed up 2.65%, while Utilities and Real Estate both had around a 1% lift. Energy was the worst performed sector falling 0.84%. Health care was the next worst, down 0.37%.
Iron ore miners were also smiling. Rio Tinto Ltd (ASX:RIO) traded at a six-month high today, up 3.4% to $116.36. Iron ore prices logged their biggest gain of 2022 in November and according to Bloomberg, the largest on record.
Futures were up nearly 30% to about $US100 per tonne compared to $US76 in October, when the biggest monthly decline (17.7%) of 2022 occurred
Iron ore gains this month broke seven consecutive months in the red and were partly due to China’s support of its property market.
BHP (ASX:BHP) Group Ltd (LSE:BHP, ASX:BHP) gained 2.11% and Fortescue Metals Group (ASX:ASX:FMG) Ltd was up 2.99%.
Making news today
Is the Fed set to ease up?
Global markets were buoyant after Fed Reserve chair Jerome Powell hinted of an interest rate hike slowdown.
“Jerome Powell effectively confirmed that the Fed will slow their pace of tightening, prompting strong correlations among asset classes which sent the dollar and yields lower, equities, commodities and (of course) commodity FX higher," City Index senior market analyst Matt Simpson said.
"Strong, highly correlated reactions signify important events as investors have likely been forced out of an incorrect trade, switched positions or added to their previous convictions.
“And make no mistake, Jerome’s speech was an important event; if the Fed are deemed to be slowing their tightening pace, it is then assumed they are closer to pausing and eventually reversing hikes (policy blunders out with).
“In turn, this has seen headlines of the famous ‘Fed pivot’ return, alongside fierce social media debates over its very definition.”
Simpson has listed what he sees as happening next:
- Fed fund futures currently estimate a 75.8% probability of a 50bp hike in December (from 4.0% to 4.5%).
- They also assume rates to peak at 5.25% in June.
- However, the June peak is only a 37.3% probability so markets lack some conviction this far out.
- In September, the Fed’s median view was for rates to peak at 4.6% by the end of 2023 and fall back to 3.9% by the end of 2024.
- It is worth noting that Powell said the terminal rate would likely be “somewhat higher than 4.6%”, so the Dot plot could be upgraded in their December meeting.
- Powell warned that rates would need to be held at a “restrictive level for some time” (higher rates for longer).
- With Powell warning of higher rates for longer, the money markets estimate of a peak in June may be misplaced.
- The Fed next meets on December 14th then return on February 1.
- CPI data is released 1-day ahead of the next Fed meeting which will be as important as the meeting itself.
eToro's US Investment analyst Callie Cox said, “Powell just said what the market has been thinking all along. Rate hikes could start slowing in the next few weeks and that means we’re one step closer to getting inflation under control and pulling prices out of this bear market.
“But before you get too excited, remember that this is a shift, not a pivot. Powell has been clear that rates could stay high for some time. A high-rate environment isn’t the easiest to invest in, and we could be in for a tougher slog to the highs until inflation comes down significantly.
“However, these comments don't have to come with too many caveats. Economic data, along with the Fed’s willingness to let off the gas, could present a good argument for the market bottom being in. We may be range-bound until we get decisive evidence that inflation is back to normal or a recession is coming, though.
“At this point, it may be time to start sowing seeds for the next bull market but try not to get carried away. High-rate environments favour quality companies that prove they can execute, so keep that in mind as you pile back into risky markets.”
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