Market Wraps

Morning Wrap: Fed raises interest rates to 16-year high, Powell hints at a pause, ASX set to fall

Thu 04 May 23, 8:35am (AEST)

ASX 200 futures are trading 35 points lower, down -0.49% as of 8:30 am AEDT.

Major US benchmarks fumbled after the Fed raised interest rates by 25 bps, Powell eliminated language about future hikes and reiterated that cuts were not appropriate at this point in time, oil prices are down more than 10% in the last two sessions, US regional banks continue to crash with PacWest shares down 58% in after hours and a closer look at UBS' equity strategy note.

Let's dive in.

Overnight Summary

Thu 04 May 23, 8:35am (AEST)

Name Value Chg %
Major Indices
S&P 500 4,120 -1.16%
Dow Jones 33,685 -1.08%
NASDAQ Comp 12,081 -1.08%
Russell 2000 1,732 -2.10%
Country Indices
Canada 20,408 -1.01%
China 3,323 +1.14%
Germany 15,727 -1.23%
Hong Kong 19,699 -1.18%
India 61,355 +0.40%
Japan 29,158 +0.12%
United Kingdom 7,773 -1.24%
Name Value Chg %
Commodities (USD)
Gold 2,048.80 +1.26%
Iron Ore 105.48 -
Copper 3.849 -0.36%
WTI Oil 68.14 -4.91%
AUD/USD 0.6672 -0.03%
Bitcoin (AUD) 43,072 +2.15%
Ethereum (AUD) 2,811 +2.36%
US 10 Yr T-bond 3.439 -3.78%
VIX 18 +10.57%

US Sectors

Thu 04 May 23, 8:35am (AEST)

Sector Chg %
Consumer Discretionary +0.16%
Consumer Staples -0.32%
Health Care -0.49%
Information Technology -0.93%
Materials -0.95%
Industrials -1.05%
Utilities -1.23%
Real Estate -1.74%
Communication Services -1.78%
Financials -2.30%
Energy -4.28%


S&P 500 Intraday
S&P 500 tumbles from breakeven levels after Powell’s speech (Source: TradingView)


  • Classic Jay Day – The S&P 500 closed at worst levels from session highs of 0.7% after the Fed raised rates by 25 bps to 5.0% - 5.25%

  • Powell eliminated language that “some additional policy firming may be appropriate” and said more firming depends on the state of the economy

  • US 2-year Treasury yield is down 34 bps in the last two sessions

  • US Dollar Index down 0.85% in the last two sessions, with gold surging to US$2,040

  • Oil prices tumble for a second consecutive session, down -10.1% 

  • Fed worries and selloff across US regional banks raises fears about financial stability (Bloomberg)

  • Short sellers pooled into regional banks last week (Bloomberg)


  • Amazon planning to revamp Alexa with more ChatGPT-like features (Business Insider)

  • Eli Lilly’s Alzheimer’s treatment slowed disease progression in clinical trial (CNBC)

  • Unity Software plans to lay off ~8% of its workforce (CNBC)

  • Tesla resumes taking orders for long-range Model 3 after 8-month pause (Reuters)

  • PacWest shares crash 58% in after hours as it considers a potential sale (Bloomberg)


Livent (+6.95%): The lithium producer posted a double beat, EPS surged 186% vs. analyst expectations of 86% growth, upgraded full-year guidance and said capacity expansion plans are on track. 

  • “70% of our 2023 volumes have fixed price terms that were set prior to our last earnings call in February. And many of these are on the firm take or pay commitments. As a result, we have a high degree of confidence around the 40% average expected price increase across these volumes.”

Kraft Heinz (+2.0%): Double beat and upgraded its full year guidance. 

  • "We are so confident that we are raising our guidance on EBITDA and earnings … we are increasing our investments in marketing and in R&D by US$100m to US$150m vs budget, which represents a solid double-digit growth vs previous year." – CEO Miguel Patricio

Starbucks (-9.2%): Double beat, comparable sales rose 11% in the quarter ended April 2 vs analyst expectations of 7.3%, China’s same-store sales increased for the first time since 3Q21, reaffirmed guidance. 

AMD (-9.2%): Double beat but next quarter guidance missed analyst expectations. Second quarter revenue is expected to be around US$5.3bn vs. analyst expectations of US$5.51bn. 

  • ‘"For Q2, we expect sequential growth in our Data Center and Client segments offset by modest declines in our Gaming and Embedded segments. We remain confident in our growth in the second half of the year as the PC and server markets strength and our new products ramp up.” – CFO Jean Hu  

Estee Lauder (-17.3%): Missed earnings and downgraded full-year outlook.

  •  "As the shape of recovery from the pandemic for Asia travel retail comes into better focus, it is proving to be both far more volatile than we expected and more gradual relative to what we experienced in other regions.” – CEO Fabrizio Freda

  • “We are, therefore, lowering our organic sales and EPS outlook for fiscal 2023 to reflect significantly greater headwinds in our fourth quarter than we expected in February.”


  • Fed raises rates, opens door to pause in tightening cycle (Reuters)

  • US private payrolls increased solidly in April, wage growth cools (Reuters)

  • US services sector grows steadily in April (Reuters)

  • New Zealand unemployment rate steady as wage inflation hits new high (Bloomberg)

  • Australian retail sales increased in April, largely driven by food sectors (Bloomberg)

  • China domestic tourism surges in first half of Golden Week (Bloomberg)

Industry ETFs

Thu 04 May 23, 8:35am (AEST)

Description Last Chg %
Silver 22.89 +2.01%
Gold 183.97 +1.93%
Nickel 32.5856 +1.64%
Aluminum 48.8301 +0.57%
Lithium & Battery Tech 59.33 -0.51%
Strategic Metals 78.08 -0.79%
Steel 60.23 -1.20%
Copper Miners 39.5 -1.34%
Uranium 19.72 -2.28%
Aerospace & Defense 114.25 -0.50%
Global Jets 18.13 -0.83%
Biotechnology 131.54 -1.32%
Cannabis 8.23 -2.55%
Description Last Chg %
Bitcoin 16.08 +3.48%
Hydrogen 9.68 -2.17%
CleanTech 14.38 -2.64%
Solar 71.13 -3.26%
Semiconductor 415.87 -0.71%
Sports Betting/Gaming 17.27 -0.87%
Electric Vehicles 22.33 -0.90%
Robotics & AI 25.12 -1.35%
Video Games/eSports 50.78 -1.52%
E-commerce 17.11 -1.52%
Cybersecurity 21.23 -1.55%
FinTech 20.46 -2.23%
Cloud Computing 16.7345 -2.78%

Deeper Dive

The Fed hike and presser in a nutshell

The Fed raised rates by 25 bps as expected and softened its rate guidance by removing the "some additional policy firming may be appropriate." Here are some of the key takeaways and quotes from the hike and press conference:

  • The Fed is ready to pause but does not want to cut rates as inflation remains well above target. It does not want to cut and then be forced to increase rates again

  • Powell downplayed the banking crisis: "Conditions in that sector have broadly improved since early March and the US Banking system is sound and resilient. We will continue to monitor conditions in the sector."

  • On inflation: "Inflation has moderated somewhat since the middle of last year. Nonetheless, inflation pressures continue to run high and the process of getting inflation back down to 2% has a long way to go."

  • On rate cuts: Powell said inflation was coming down "not so quickly" and that "it would not be appropriate" to cut rates

  • On recession: The Fed's base forecast is a mild recession in the second half but Powell said he expects the economy to continue to grow at a modest rate this year

  • On restrictive rates: Powell said that more data will be required to determine whether or not 5.0% to 5.25% is sufficiently restrictive enough

RBA Recap & More Central Bank Action

Tuesday's RBA decision was correctly predicted by just nine of the 30 economists surveyed by Bloomberg. The rates market priced just a 12% chance of a rate hike. But the Board went against the grain and hiked rates anyway (not that Coolabah Capital's Christopher Joye was surprised). It turns out the "long and variable" lags of monetary policy is really just 30 days! Or as Morgan Stanley put it:

"The month to month pivots in RBA communication this year have made it difficult to extrapolate meeting communication."

We'll know some more about why they hiked when the local Statement on Monetary Policy drops on Friday. The SoMP (as the industry calls it) will contain the latest summary of economic projections from the Bank's economists.

But if you thought that was the end of the central bank action, think again. There are two more major bank decisions on the way:

  • The European Central Bank is also widely expected to hike rates by 25 basis points but in this case, the risk is still material that they will go by 50 basis points instead due to sticky inflation and very tight labour markets.

  • Then, it's on to the Bank of England next week where interest rates are at 4.25%, inflation is over 10%, and more than a few analysts think that they will pause rate hikes. What?!

Broker Watch: UBS Strategy

Earlier this week, Livewire's Ally Selby penned some key takeaways from the latest Macquarie equity strategy note. Today, it's the turn of UBS who has decidedly turned more bearish than in previous months.

"The challenges that active managers are facing look set to remain in the near term through a period where we believe the RBA's 'rate plateau' will keep equities stuck in a range."

They add five more points which investors in some widely-held stocks may be interested in noting down:

  1. When investors crowded into defensive names through the pandemic period, it made sense given the unparalleled experience of the time. But for investors to still be paying such large premiums for the ASX's most defensive stocks such as Woolworths (ASX: WOW) and Telstra (ASX: TLS) makes less sense to us.

  2. "We find that fund managers of Australian equity portfolios are on average currently holding a ~3% weighting in cash. This reflects less risk aversion versus the 4% levels reached in early 2020."

  3. "Equities are being increasingly driven by macro forces... while stock specifics become somewhat dismissed."

  4. "A lack of conviction from equity investors is also shown through the extent to which gold has become the dominant macro driver of Aussie equities returns over the last 6 months."

And something interesting ...

Corporate activist Carl Icahn’s fortune fell by more than US$10 billion after short-seller Hindenburg Research accused him of using a “ponzi-like” economic structure at his investment company. Hindenburg also detailed the investor’s margin loan collateralised by his stake in the company. All told, Icahn’s fortune fell to US$14.6 billion.

Start a GoFundMe, guys.

Key Events

ASX corporate actions occurring today:

  • Trading ex-div: Jupiter Mines (JMS) – $0.012, Om Holdings (OMH) – $0.015, Waterco (WAT) – $0.05 

  • Dividends paid: Arena REIT (ARF) – $0.042 

  • Listing: None

Economic calendar (AEST):

  • 11:30 am: Australia Balance of Trade 

  • 11:45 am: China Caixin Manufacturing PMI

  • 10:15 pm: Eurozone Interest Rate Decision

  • 10:30 pm: US Balance of Trade

Written By

Hans Lee

Senior Editor

Hans is one of the Senior Editors at Livewire Markets and Market Index. He created Signal or Noise and leads the team's coverage of the global economy and fixed income markets.

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