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

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