The ASX is likely to open higher today, after Wall St closed flat on a hawkish call from the US Federal Reserve.
ASX 200 futures are trading 20 points higher, up 0.28% as of 8:20 am AEST.
"As expected, the Federal Reserve paused its hiking cycle overnight, but Jerome Powell gave investors a reality check with hawkish comments that signalled more hikes and no rate cuts this year," eToro market analyst Josh Gilbert said.
"This may not have been exactly what investors were hoping for, given the weaker-than-expected CPI reading earlier in the week, but it points to the Fed sticking to its mandate of getting inflation back to target. The worry from here is rates staying higher for longer, which could weigh on growth, and put the economy under pressure.
“Despite this, markets continue to hear a different tune, with the Nasdaq and S&P500 still seeing gains overnight. Rather than hearing ‘no rate cuts this year’, the market seems to believe the Fed is reaching the end of this cycle, which is why we continue to see such a strong performance.
"That’s good news for the local market, which looks set to benefit from the strong tailwind of Wall Street – the ASX could break its three-week losing streak this week.
“On the economic front, the focal point is employment data. Labour supply is growing at a fast pace as immigration climbs. However, job creation may not be matching pace, which could signify a jump in the unemployment rate. Market consensus is for the unemployment rate to stay unchanged at 3.7% since its last jump from 3.5% in mid-May - but it may not be long until that number ticks up again.
“Today also sees a data dump from China, including retail sales and industrial production. The data from these releases may signal the need for policymakers to step up their support for the economy. Another cut to lending rates may be on the cards before this data is released when the PBOC meet this morning.
"Another cut here could signify more good news for the materials sector since miners rallied yesterday after China cut rates on a short-term rate, providing optimism that policymakers were rising to the occasion."
Here’s what we saw (source Commsec):
US markets
Were mixed on Wednesday. The S&P 500 index closed higher, recovering some ground after US Federal Reserve chair Jerome Powell said no decision on interest rates had been made for the next few policy meetings.
Shares of chipmakers Nvidia (+4.8%) and Broadcom (NASDAQ:AVGO) (+4.1%) both rallied. Advanced Micro Devices (NASDAQ:AMD) shares gained 2.3% after the company announced its latest artificial intelligence chips.
Weighing on the Dow Jones index, UnitedHealth Group (NYSE:UNH) shares tumbled 6.4% after the health insurer warned of a spike in medical costs in the second quarter. Other insurers, such as Humana (NYSE:HUM) (-11.2%), also dropped. Shares of regional lenders Keycorp (-5.4%) and Zions Bancorp (-5.7%) both fell.
At the close of trade, the Dow Jones index fell by 233 points or 0.7% after being down 428 points at session lows. The S&P 500 index gained 0.1% and the Nasdaq index added 53 points or 0.4%, both touching their highest levels since April 2022.
European markets
Lifted on Wednesday as miners rallied by 2.3% on bets of Chinese stimulus. Shares of Shell (LON:RDSa) rose by 0.4% as the energy giant said it would increase its dividend by 15% and boost natural gas production. Britain's economy grew by 0.2% in April (survey: +0.2%).
The continent-wide FTSEurofirst 300 index lifted by 0.4% and the UK FTSE 100 index edged higher by 0.1%.
Currencies
Were mixed against the US dollar in European and US trade.
- The Euro rose from US$1.0773 to US$1.0863 and was near US$1.0830 at the US close.
- The Aussie dollar fell from US68.35 cents to US67.58 cents and was near US67.95 cents at the US close.
- The Japanese yen firmed from 140.19 yen per US dollar to JPY139.29 and was near JPY140.10 at the US close. Global oil prices fell by around 1.5% on Wednesday.
US crude oil stocks rose by 7.9 million barrels last week, according to data from the Energy Information Agency. Analysts had estimated a 500,000-barrel decline.
- The Brent crude price fell by US$1.09 or 1.5% to US$73.20 a barrel.
- The US Nymex crude price shed US$1.15 or 1.7% to US$68.27 a barrel.
- The copper futures price and the aluminium futures price both rose by 1%.
- The gold futures price rose by US$10.30 or 0.5% to US$1,968.90 an ounce.
- Spot gold was trading near US$1,942 an ounce at the US close.
- Iron ore futures added US30 cents or 0.3% to US$112.75 a ton on prospects of more Chinese stimulus.
While the Fed left rates unchanged, it did intimate more rises were coming to combat inflation.
“Returning to this morning’s FOMC meeting, the new dot plot shows members expect at least another 50bp of rate hikes this year,” IG Markets Tony Sycamore said.
“Taking some of the edges off the hawkish statement, Fed chair Powell said in the presser, the committee thought it was appropriate to moderate the pace of rate hikes if only slightly and emphasised data dependence going forward.
“The rates market is pricing in a 65% probability (16bp) of a 25bp rate hike at the July meeting. Attention now turns to the release of retail sales for May at 10.30pm tonight AEST. The market expects a -0.2 fall in the headline from +0.4% in April.”
The after-decision Fed statement said: “Holding the target range steady at this meeting allows the committee to assess additional information and its implications for monetary policy.”
Proactive journalist Andrew Kessell writes, “The federal reserve’s 'dot plot', which measures FOMC members’ expectations for rates going forward, moved upward to a median of 5.6% by the end of 2023. If the committee moves in 0.25% increments, that would mean two more rate hikes this year.
“Despite the unanimous agreement on a pause, there are discrepancies in how many more hikes members believe are necessary.”
You can read his article here.
Speaking of reserve banks
It seems our own, has been underpaying staff.
The Reserve Bank of Australia (RBA) has admitted to underpaying 1,173 current and former staff over the past seven years.
The RBA found payroll issues relating to the “calculation of employee entitlements”, following a PwC-assisted review.
“The review of entitlements for all impacted current and former employees has now been completed going back to 2016,” the letter addressed to the Finance Sector Union and dated June 13, 2023, says.
“It identified 1,173 current and former impacted employees with a total amount payable of (circa) $1.15 million. Superannuation (where applicable) and interest will be paid in addition to this.”
The letter says the issue is due to the way payments for annual leave, long service leave and rostered days off were calculated “during either a cash-out or termination event, where employees had been receiving the cash value of various bank benefits during their employment”.
“We are genuinely sorry that these issues have occurred,” RBA’s head of human resources Karlee Hughes wrote in a letter to affected staff on Tuesday.
“We are committed to rectifying all issues identified as quickly as possible, and have a dedicated team allocated to ensure this occurs.”
It comes after the Commonwealth Bank, Woolworths and Qantas also admitted underpayments.
Sector Union national secretary Julia Angrisano expressed her disappointment.
“The RBA should be setting an example to the financial services sector by paying its workers the correct rates of pay and appropriate entitlements all the time.
“Far too many employers in the sector have been found wanting when it comes to paying staff properly.”
If it was the hospitality sector, businesses would be fined.
Gas supply to increase
The Australian gas industry will lift supply to offset a looming east coast shortfall.
It should also hold off any price hikes which would put even more cost pressure on average Australian households.
The federal government said gas producers have promised to increase supplies by at least 260 petajoules to 2027.
“It strikes the right balance. It means that Australian gas under Australian soil and Australian water is available for Australians at a reasonable price, but we are making sure that those gas shortages – that both The Australian Energy Market Operator and Australian Consumer and Competition Commission have warned of – aren’t imminent,” Federal Energy Minister Chris Bowen said.