Morning wrap: US stocks fade after Fed signals rate hike in March, ASX to rise

ASX Futures (SPI 200) imply the ASX will open 17 points higher, up 0.25%. 

US stocks opened higher but faded amid the US Federal Reserve's remarks.

The Fed reaffirmed the consensus view that it will raise interest rates in March. The central bank also confirmed its plans to end its bond purchase program that month, followed by a significant reduction in its asset holdings.

Key points

• The S&P 500 (large caps) and Dow Jones (blue chips) rallied more than 1.5% after open but faded into close, down -0.15% and -0.4% respectively

• The Nasdaq (tech) closed 0.02% higher, down from an intraday high of 3.4%

• The market is experiencing a technical bounce from oversold levels. The rejected rallies paints an increasingly bearish picture

• The Fed is ready to make its pivot away from accommodative monetary policy to tackle stubbornly high inflation 

• “With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the Fed’s Open Market Committee said in a statement 

• The Fed agreed on a framework for reducing the size of its almost US$9tn balance sheet, which has doubled since the beginning of the pandemic 

• The reduction will begin after the first interest rate hike, though, the Fed has not yet set a specific date or size

• The Russian government has warned it would take “retaliatory measures” if the US and other Western allies continue to reject its security demands. Russia has an estimated 100,000 troops near Ukraine’s border. There are growing concerns that an invasion is imminent    

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On Tuesday, the S&P 500 rallied 4.4% from intraday lows to close. The sheer buying power and bullish reversal set the scene for a potentially positive session for the ASX. 

The ASX would go on to close -2.5% lower.   

With all three major US indices fading into close, investors should expect more volatility and downside risk across all ASX sectors. 

▲ Technology 

Microsoft is carrying the tech sector after topping earnings and revenue expectations for the December quarter. The stock initially fell more than -5% in after hours trading, but turned positive after the company issued an upbeat outlook for the March quarter. 

Microsoft’s revenues rose 20% to US$51.7bn, topping analyst expectations of US$50.88bn, according to Refinitiv. The company’s stock closed 2.5% higher, though well off session highs of 6.8%.

Noteworthy tech earnings for the rest of the week include: 

Wednesday: Tesla, Intel 

Thursday: Mastercard, Apple, Visa, Robinhood 

▲ Energy 

Energy is deserving of an upwards arrow as oil prices continue to edge higher after a brief pullback earlier this week. Crude oil prices are trading at US$86.6/b, up from Monday’s lows of US$81.9/b. 

“So immediately it becomes a question how long we’ll be waiting for triple figures. The supply/demand dynamics remain favourable and the potential for conflict in Ukraine can only be supportive, as additional risk premiums are priced in,” said OANDA senior market analyst, Craig Erlam. 

“It’s still unlikely that oil and gas will be used as a weapon any time soon but if it was, it could lead to a serious surge in prices given how tight the markets are.”

▼ Materials 

US material stocks were weighed by construction and manufacturing companies. 

Commodity prices generally weakened overnight. Though, iron ore prices continue to march higher, up 0.2% to US$138.1 a tonne.

The US-listed counterparts of BHP (ASX: BHP) and Rio Tinto (ASX: RIO) rose 1% and 0.6% respectively. 

Major ETFs have tried and failed to bounce in the last three trading sessions.

#1 Uranium

The Uranium ETF has continued to roll over, down -4% overnight as investors continue to exit risky assets.

Most ASX uranium stocks sold off sharply on Tuesday, with a leading name like Paladin Energy (ASX: PDN) down -7.4%.

Have local uranium stocks been beaten up enough? Or will the ETF's weakness drag them even lower?

#2 Tech

The Nasdaq (tech) was buoyed by mega caps including Microsoft, Tesla and Alphabet. Though, most tech stocks closed in negative territory. 

The eCommerce, Cloud and FinTech ETFs fell between -1% and -1.8% lower, retesting fresh 16-month lows.

The benchmark US 10-year Treasury yield rallied 5.9% overnight to 1.88%. Higher yields typically weigh on tech stocks.

The local market could continue to see weakness across tech names including:

• WiseTech Global (ASX: WTC)

• Xero (ASX: XRO)

• Block (ASX: SQ2)

ASX corporate actions occurring today:

• Ex-dividend: PRT

• Dividends paid: PMV, TGP, TOT, TRA

• IPOs: HAR