Morning Wrap: ASX 200 futures flat, Fed hikes rates + Macquarie's take on iron ore

The Fed hiked interest rates by 25 bps to 5.25% to 5.50%, the highest in 22 years. The S&P 500 finished breakeven but the Dow powered ahead for a 13th consecutive session, Meta shares surge after hours on better-than-expected earnings, Macquarie says iron ore sentiment has improved dramatically and a recap of Powell's press conference.

Let's dive in.

S&P 500 SESSION CHART

Another choppy Fed session (Source: TradingView)

DOW WEEKLY CHART

Dow Jones Industrial Average weekly chart (Source: TradingView)

MARKETS

• S&P 500 -0.02%, Nasdaq -0.12%, Dow +0.23%, Russell 2000 +0.72%

• S&P 500 closed around breakeven and marked one of its least volatile Fed sessions - Less than 35 bp swing from session highs and lows

• Dow finished higher for a 13th straight session, tied for the longest winning streak set in January 1987

• US Dollar Index pulls back but most commodity prices (copper, oil) eased

• Gold ended up 0.33% to US$1,971

CENTRAL BANKS

• Fed raises rates, Powell leaves door open to hike in September (Reuters)

• Powell provides little guidance for September, reiterates the Fed is ‘data dependent’ – “We’d be comfortable cutting rates when we’re comfortable cutting rates” (Bloomberg)

• Central banks may cut interest rates before inflation goals met (Reuters)

• Investment banks warn investors of potential BoJ surprise (FT)

• Options market prices in ECB rate U-turn after weak data (Bloomberg)

• RBA rate hike odds fall after June inflation slows by more than expected (Reuters)

STOCKS

• Coca-Cola says its done with price hikes this year (CNBC)

• Volkswagen to develop two new EVs via Chinese automaker Xpeng (CNBC)

• Bank of California and PacWest confirm merger, announce $400m raise (Reuters)

• Meta, Amazon, and Microsoft team up on maps project to crack Apple-Google duopoly (CNBC)

EARNINGS

Recapping the performance of a few stocks that reported after hours yesterday plus something interesting from their earnings: 

• Alphabet (+5.6%): Double beat. Ad stabilisation. Google noted nearly 80% of advertisers are already using at least one AI-powered Search ad product 

• Visa (-0.7%): Double beat. Notes that consumer spend across the wealth spectrum remained stable since March and does not indicate any change in consumer behaviour 

• Microsoft (-3.8%): Double beat. Faces scrutiny surrounding capex guidance, which may up sequentially in the first quarter of 2024 and increase further in FY24

A few high-profile companies that reported today include:

Boeing (+8.7%): Double beat, losses were less than expected, reiterated full-year guidance of between US$3-5bn free cash flow and expects to deliver 400-450 737 planes this year. 

Meta (+1.4%, after hours +7.6%): Double beat, revenue for the quarter up 11% to US$32bn, Facebook daily average users up 5% to 2.06bn on average, ad impressions up 34% year-on-year but the average price per ad fell 16%.  

• Product roadmap: “We continue to see strong engagement across our apps and we have the most exciting roadmap I've seen in a while with Llama 2, Threads, Reels, new AI products in the pipeline & the launch of Quest 3 this fall.” – CEO Mark  Zuckerberg 

• Capex outlook: "We expect our full-year 2023 capital expenditures to be in the range of $27-30 billion, lowered from our prior estimate of $30-33 billion. The reduced forecast is due to both cost savings, particularly on non-AI servers …” – CEO Susan Li 

• Ad revenue: "Within AD revenue the online commerce vertical was the largest contributor to YoY growth, followed by entertainment & media and CPG.”

ECONOMY

• Japan business services inflation slows in June, suggesting companies remained slow in passing on rising labour costs (Reuters)

• South Korea inflation expectations hits 14-month low in July (Yonhap)

• China GDP growth consensus forecasts revised down (Bloomberg)

• Refinery outages and low stockpiles boosting gas prices globally (Bloomberg)

DEEPER DIVE

Federal Reserve Wrap: From mild recession to no recession

You get no prizes from me for guessing the Federal Reserve hiked interest rates by 25 basis points this morning - especially when markets had a 98% chance of a hike priced in! The Fed funds target range is now 5.25-5.5%, a 22-year high. As was widely expected, it's left itself some optionality in case inflation spikes again. There was also no dissent in this morning's decision and very little change to the prepared statement which is of note as well. You can read the changes (or lack thereof) at the bottom of this segment.

The last meeting's note on pausing rates was replaced by this:

• "The Committee will continue to assess additional information and its implications for monetary policy."

When pressed at the news conference whether that means we'll see a second and more lasting pause at the September meeting, he gave one heck of a non-answer.

• "Looking ahead we will continue to take a data-dependent approach in determining the extent of additional policy firming that may be appropriate."

The only thing he said of note is repeating a line that most of the markets have already understood. Rate cuts are likely on the way but they won't come this year. Yields and stocks barely moved on the news, though having said that, it was clear that they were focussed on the Meta and Mattel results instead (as they should be). Finally, Powell said outright that he isn't too keen on providing forward guidance anymore after three years where forward guidance played an important yet often misleading role. The Fed's own staff are also no longer forecasting a recession just three months after saying a mild one was on the way. The consumer has, once again, completely confounded the economics community.

Macquarie on Iron Ore

Market sentiment has improved dramatically in the ASX materials index since Beijing announced that they would be stimulating the Chinese economy after all. This all comes amid an uptick in weekly shipments for Rio Tinto, BHP, and Fortescue and in spite of a miss on shipments from Mineral Resources yesterday. BHP and MIN are Macquarie's picks in the space. For a lower volatility, pure iron ore play, they back Deterra Royalties (ASX: DRR).

ASX corporate actions occurring today:

• Trading ex-div: None

• Dividends paid: Sunland (SDG) – $0.20, 360 Capital (TGP) – $0.02, Australian Unity Office (AOF) – $0.025, 360 Capital REIT (TOT) – $0.015 

• Listing: None

Economic calendar (AEST):

• 10:15 pm: ECB Interest Rate Decision

• 10:30 pm: US Durable Goods 

• 10:45 pm: ECB Press Conference