Global equities once again closed higher on Wednesday after the Federal Reserve left interest rates unchanged as widely forecast, while signalling that officials expect some further increases.
United States
The Fed left the interest rate unchanged at 5.25%, following fifteen months of interest-rate hikes, but did not rule out further hikes in the future. Fed Chair Jerome Powell said it would be appropriate to raise interest rates “somewhat further” in 2023,” adding, “Not a single person on the committee wrote down a rate cut this year, nor do I think it is at all likely to be appropriate”. In the updated economic projections or so-called “dot plots”, officials predict rates will need to rise to as much as 5.6% by the end of 2023 in contrast to 5.1% previously. The FOMC provided further insight over what is considered a ”hawkish pause”, “Holding the target range steady at this meeting allows the committee to assess additional information and its implications for monetary policy”.
Federal Reserve Interest Rate Projections
After initially moving lower following the decision and press conference, the S&P500 edged 0.08% higher on Wednesday while the Dow fell by -0.68%, while the Nasdaq edged up 0.39%, while the Russell 2000 Index dropped -1.17%along with the VIX -5% to 13.88. The interest rate sensitive 2-Year US Treasury bond yield was up 1 basis point to 4.68%. Meanwhile the 10-Year bond yield fell 2 basis points to 3.79%, and the 30-Year bond fell 3 basis points to 3.88%.
Europe
The markets in Europe closed higher at the end of trading on Wednesday, with sentiment remaining positive on expectations of stimulus from China. The STOXX 600 Index was up by 0.26%, the CAC closed 0.52% higher, the DAX gained 0.49% and the FTSE edged up 0.10%. In economic data, the United Kingdom’s economy grew at a steady pace of 0.5% as forecast. Investors will now be looking to hear the ECB’s decision on the interest rate later today, followed by a press conference. The central bank is expected to increase rates by 0.25% to 3.5% with financial markets pricing in an additional 0.25% of tightening by year-end.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX 200 Index is expected to open higher on Thursday, with ASX futures up 20 points or 0.28% to 7,150. The Index closed 0.32% higher at 7161, amid mixed stock performance with only 54% of the index members closing higher. Materials jumped 2.49%, financials added 0.89% and energy rose by 0.68%. The gains were enough to offset the decline in the healthcare sector, which sank -4.82%. Information technology lost -1.45% and real estate slid -0.37%. In individual stocks, Mineral Resources was the star performer of the index, rising 5.01%. News of the People’s Bank of China lowering borrowing rates by 10 basis points to stimulate the economy boosted the materials sector. BHP jumped 3.64%, Rio Tinto climbed 2.90%, Alken Ltd firmed 4.63% and Pilbara Chemicals was up 2.95%. In banking, the big banks saw their share prices rise, Westpac 1.28%, NAB 1.15%, CBA 0.88%, while ANZ slid -0.04%. Meanwhile, CSL Ltd. was the biggest underperformer, plummeting by -6.89%, after the company revised guidance on profit for June 2024 from $3.5 billion to $2.9 billion, and noting forex headwinds would impact profits by up to $250 million.
In focus today is the release of unemployment data for May, expected to show the unemployment rate remained stable at 3.7% with expectations 15k jobs were added over the month. Key data from China will also be released in the form of fixed asset investment, industrial production and retail sales. Investors will also be closely watching New Zealand GDP data for Q1, expected to show the economy entered a recession with a -0.1% contraction over the first three months of the year.
Commodities
In commodities, the price of oil fell with WTI and Brent Crude declining -1.66% and -0.96% to $68.27 and $73.58 respectively. In precious metals, the price of spot gold slid -0.06% to $1,942, while the price of spot silver gained 1.07% to $23.91. Industrials metals were mixed, copper rose by 1.02% to $387, nickel jumped 5.84% to $21,880, SGX Iron Ore rose 5.26% to $111.66. The price of Bitcoin sank -2.8% to 25,095.
Economic Calendar
15th June 2023
New Zealand GDP Growth Rate (YoY Q1) 08:45
Australian Unemployment Rate (MoM May) 11:30
Chinese Fixed Asset, Industrial Production, Retail Sales (YoY May) 12:00
ECB Interest Rate Decision 22:15
US Retail Sales (MoM May) 22:30
US Jobless Claims (June 3rd) 22:30
ECB Press Conference 22:45
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
