Market Wrap

Morning Wrap: Wall Street rallies on Fed interest rate outlook, ASX to rise

Thu 26 May 22, 8:33am (AEST)

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ASX Futures (SPI 200) imply the ASX will open 13 points higher, up 0.18%.

Wall Street rallied after the Fed said they remain open to adjusting their tightening cycle later in the year, New Zealand has hiked interest rates for the fifth time in a row, Cathie Wood slaps a ridiculous price target on Tesla and Beijing at risk of covid restrictions.

Let’s dive in.

Overnight summary

Wed 25 May 22, 10:33pm (AEST)

Name Value Chg %
Major Indices
S&P 500 3,979 +0.95%
Dow Jones 32,120 +0.60%
NASDAQ Comp 11,435 +1.51%
Russell 2000 1,799 +1.95%
Country Indices
Canada 20,384 +0.48%
China 3,107 +1.19%
Germany 14,008 +0.63%
Hong Kong 20,171 +0.29%
India 53,749 -0.56%
Japan 26,678 -0.26%
United Kingdom 7,523 +0.51%
Name Value Chg %
Commodities (USD)
Gold 1,851.80 +0.30%
Iron Ore 133.27 -
Copper 4.272 +0.41%
WTI Oil 110.82 +0.44%
Currency
AUD/USD 0.7091 +0.09%
Cryptocurrency
Bitcoin (AUD) 41,999 +0.04%
Ethereum (AUD) 2,769 -1.58%
Miscellaneous
US 10 Yr T-bond 2.749 -0.40%
VIX 28 -3.67%

Stocks

  • Major US indices were relieved to see that the Fed might take a pause with rate hikes towards the end of the year

    • Investors are increasingly concerned that tightening financial conditions too quickly will drag the economy into a recession

  • Fed fund futures are pricing in 2 x 50 bp hikes and 3 x 25 bp hikes

    • Could set the scene for a 'wait and reassess' by year end

  • 9 out of 11 US sectors were green

  • Consumer discretionary, energy and tech outperformed

  • Utilities and healthcare sectors were red

  • 71% of US stocks advanced

  • 72% of US stocks trade below their 200-day moving average (73% on Wednesday, 74% a week ago)

  • GameStop (+29%) after news of another potential short squeeze due to a recent rise in short interest

    • Earlier this week, GameStop announced the launch of a digital wallet for holding non-fungible tokens (NFTs) and cryptocurrency 

  • Nvidia (+5.1%, after hours: -6%) met March quarter earnings expectations but gave a light forecast for the current quarter

    • Nvidia said revenues in the March quarter would have been -US$500 lower had it not been for the Russia-Ukraine war and Chinese lockdowns

  • Tesla (+4.9%) not exactly news-related but Kathie Wood’s Ark Invest expect Tesla shares to hit US$4,600 by 2026

    • By 2026, Ark analysts expect Tesla to generate 34% of its revenues from Robotaxi’s and 57% from EV sales 

    • It's worth noting that the Ark Innovation ETF is down -56% (aka they only make good calls when the market is going up)

  • Twitter (+3.9%, after hours: +6.4%) rallied after Elon Musk increased his financial commitment for the takeover bid to US$33.5bn and in talks for additional funding

Economy

  • The Reserve Bank of New Zealand raised interest rates by 50 bps to 2.00%

    • NZB said “it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and support maximum sustainable employment.”

    • Getting ahead of the curve provides the central bank with flexibility for future rate cuts if need be 

  • US durable goods orders rose 0.4% in April

    • Economists polled by the Wall Street Journal had forecast a 0.7% gain

    • The increase was the second weakest reading in seven months

    • Suggests the US economy is growing at a steady but slowing pace 

  • US Federal Open Market Committee meeting highlights

    • All Fed officials backed a half-percentage point rate increase in May

    • Most saw half-point hikes in June and July

    • Members agreed that the Fed should expeditiously move the stance of monetary policy towards a neutral posture

    • Participants said data had begun to indicate that inflation “may not longer be worsening”

  • Beijing could be the next market moving headline as covid pressures are mounting

    • Beijing covid cases have hit all-time highs of 51

Commodities

  • Iron ore prices inched higher, in-line with the market rally

    • Downstream demand in China remains soft, according to Fastmarkets

  • Oil prices were unchanged after the EIA (Energy Information Agency) oil inventory report showed that stockpiles were declining again

  • Gold prices fell after the Fed signalled they are not considering larger interest rate hikes 

 

US Sectors

Wed 25 May 22, 10:33pm (AEST)

Sector Chg %
Communication Services +0.88%
Consumer Discretionary +2.78%
Consumer Staples +0.04%
Energy +1.96%
Financials +0.80%
Health Care -0.02%
Sector Chg %
Industrials +0.64%
Information Technology +1.21%
Materials +0.47%
Real Estate +0.56%
Utilities -0.06%

Industry ETFs

Wed 25 May 22, 10:33pm (AEST)

Description Last Chg %
Commodities
Aluminum 61.6601 -1.80%
Copper Miners 38.82 -0.28%
Gold 174.13 -0.60%
Lithium & Battery Tech 70.85 -0.86%
Nickel 35.02 +1.80%
Strategic Metals 98.31 -0.84%
Steel 60.33 +1.41%
Silver 20.39 -0.25%
Uranium 21.05 +0.76%
Industrials
Aerospace & Defense 98.84 +0.85%
Global Jets 18.65 +2.25%
Healthcare
Biotechnology 114.58 +0.17%
Cannabis 3.45 0.00%
Description Last Chg %
Cryptocurrency
Bitcoin 18.22 +0.71%
Renewables
CleanTech 13.83 +3.98%
Hydrogen 13.17 +0.53%
Solar 66.31 +1.66%
Technology
Cloud Computing 16.52 +3.03%
Cybersecurity 25.28 +1.78%
E-commerce 16.11 +3.72%
Electric Vehicles 23.08 +0.30%
FinTech 23.39 +2.57%
Robotics & AI 22.45 +1.25%
Semiconductor 388.95 +1.80%
Sports Betting/Gaming 15.94 +0.31%
Video Games/eSports 49.55 +1.47%

ASX Sectors to watch

It was overall a pretty quiet session, especially on the ETF front, where most were +/- less than 1%.

  • Small gainers include Uranium and Hydrogen

  • Small losers include Copper Miners, Gold, Rare Earth/Strategic Metals and Lithium

#1 Tech

Of course tech rallied the most after the Fed provided a glimmer of hope of a more neutral stance later in the year.

Megacap names like Microsoft, Alphabet, Meta and Apple were rather muted, up by no more than 1.4%.

Notable gains came from more beaten up names including:

  • Affirm +10.9%

  • Snapchat +10.7%

  • Zoom +8.5%

  • Tesla +4.9%

  • Block +2.7%

The encouraging overnight session could see some relief buying take place for the local tech sector. The S&P/ASX 200 Info Tech Index has had a rough past two days, down -6%.

Its interesting to see that local ex-tech darling Appen (ASX: APX) has received a +$1bn takeover offer from a potential buyer, according to the Australian Financial Review.

Today's events

ASX corporate actions occurring today:

  • Ex-dividend: ALL, IAP, JHX, NUF

  • Dividends paid: BOQ, USQ

  • Listing: DRM, TG6

  • Issued shares: ACQ, ACW, C79, CGF, CXM, DVP, ELS, EM2, ESH, FLC, HCH, HIO, KMT, MAN, MDX, MEA

Other things of interest: 

  • US GDP Growth Rate at 10:30 pm

  • US Initial Jobless Claims at 10:30 pm

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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