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

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.

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 

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.

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