Relief-rally on Wall St, NAB, Iress, Ramsay, Janus Henderson, FMG, Graincorp on watch: ASX to rise

Wall St soars in celebration of Fed Chair ruling out bigger rate hikes after plating a 50 basis point hike this morning. ASX faded into the close in anticipation of the news after investors learned of banks raising mortgage interest rates, following the surprised RBA rate hike. Oil prices jumped amid EU’s plans to phase out Russian oil imports.

Good morning. What a relief-rally. I’m Melissa Darmawan for Finance News. This is your market outlook.

The Australian sharemarket is set for a warm start after the surge on Wall St.

Powell quells 75bp rate hike, fuels Wall St’s soar

US stocks soared into the close with a buoyant finish after Fed Chair Jerome Powell quelled the biggest concerns on investor’s minds after raising the interest rate by 50 basis points to combat 40-year high inflation. Investors also learned that the Fed is set to reduce its balance sheet next month, taking liquidity out of the market.

At the closing bell, the Dow Jones gained 2.8 per cent to 34,061, the S&P 500 added almost 3 per cent to 4,300 and the Nasdaq jumped 3.2 per cent to 12,965.

The gains were across the board on the S&P 500 sectors with energy leading the pack, soared 4.1 per cent, followed by communication services, and information tech. You can see that these growth stocks were the beneficiaries of this news as the treasury yield fell. Real estate added the least up 1 per cent with the other sectors rallying from 2 to 3 per cent.

The yield on the 10-year treasury note dipped 3 basis points to 2.93 per cent, gold fell as the greenback dipped as investors put risk on the table. This was expected as a 50 basis hike was unveiled versus 75 which would have sent the greenback higher.

Why did Wall St soar?

There were a few issues on investors’ minds that Mr Powell eased.

Firstly, investors feared that the Fed could raise rates more aggressively with a 75 basis point hike due to the global macro backdrop such as the Russian war in Ukraine and extended lockdowns in China, exacerbating global strained supply chains which would send prices even higher.

Secondly, investors were concerned about the country going into a recession. Mr Powell anticipates a softish landing given the strength of the economy with investors interpreting that a recession could be avoided.

If we look at the moves today, today was an example of “sell the rumour, buy the news” as some market participants thought that the Fed would plate more than a 50 basis point hike. We saw the ASX yesterday fade into the close and we saw a bumpy trade on Wall St till we received colour on the rate outcome. It shows that when investors worry, volatility ensues.

The performance today is a nice boost after a tough April and even a rough year so far on the markets for both bond and equity investors. Given where consumer sentiment is at, the news from the Fed was certainly well received. However as we have chatted several times about this, will this rally be sustained?

Despite emotions running wild, it’s important that we also remain data-dependent. This includes reviewing the company outlook as a beat on earnings and revenue is not always enough to send stocks rallying.

An example of this was ride hailing giant, Lyft, which plummeted nearly 30 per cent after weak guidance for the current quarter as it expects to invest in driver supply. Back home, yesterday we saw JB Hi Fi (ASX:JBH) close 4.8 per cent lower to $49.73, citing the ongoing disruption to stock availability and operations arising from Covid-19 amid the global macro picture.

Figures around the globe

European markets closed lower. Paris dropped 1.2 per cent, Frankfurt fell 0.5 per cent while London’s FTSE lost 0.9 per cent.

On the London Stock Exchange, Rio lost 2.7 per cent, BP added 0.4 per cent and Shell also added 0.4 per cent.

Asian markets, Hong Kong’s Hang Seng lost 1.1 per cent while Tokyo’s Nikkei and China’s Shanghai Composite were closed.

Yesterday, the Australian sharemarket closed 0.2 per cent lower at 7,305. Join me here for “RBA rate hangover lingers as investors fret Fed hike outcome, ASX fades 0.2% lower”.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a 0.4 per cent gain.

What to look out for today

Energy stocks such as Woodside Petroleum (ASX:WPL) could extend its rally for a second day after the oil price jumped over 5 per cent amid a weaker greenback.

In earnings, National Australia Bank (ASX:NAB) posted a 10.7 per cent half profit increase to $3.5 billion. Keep an eye out for more to come.

Iress (ASX:ASX:IRE), QBE Insurance (ASX:QBE) and Rio Tinto (ASX:RIO) have their annual meetings today.

Several broker moves, starting with the companies that have been downgraded. Goldman Sachs cut ANZ Bank (ASX:ANZ) neutral from buy, Jefferies reduced Harvey Norman (ASX:HVN) hold from buy, and Liberum cut BHP Group (ASX:BHP) to sell from hold.

To the upgrades, JPMorgan raised ARB Corp (ASX:ARB) to neutral from underweight, Credit Suisse raised Fortescue (ASX:FMG) to neutral from underperform, Morgans Financial hiked PTB Group (ASX:PTB) to add with a price target of $1.51.

Metcash (ASX:MTS), according to The Australian, the grocery wholesaler hired Goldman Sachs to consider buying Superior Food Services from Quadrant Private Equity.

Wheat futures have jumped sharply higher as there remains some political uncertainty in the news as to the Indian wheat export ban or restriction. Keep an eye out on Graincorp (ASX:GNC).

Clients have withdrawn cash for 17 straight quarters with speculation that further clients are set to exit Janus Henderson (ASX:JHG), according to Bloomberg.

Ramsay Healthcare (ASX:RHC) posted after market close yesterday stating that they’ve provided a notice to private health insurance provider Bupa to terminate the hospital purchaser provider agreement. This is set to affect Bupa customers wanting access to Ramsay hospitals.

Ex-dividend

There are two companies set to trade without the right to its dividend.

Jupiter Mines (ASX:JMS) is paying 1 cent unfranked
Vita Group (ASX:VTG) is paying 13.3 cents fully franked

Dividend-pay

There are two companies set to pay eligible shareholders today.

Arena REIT No 1 (ASX:ARF)
Gold Road Resources (ASX:GOR)

Commodities

Iron ore has gained 0.4 per cent to US$142.90.

Gold has lost $1.80 or 0.1 per cent to US$1869 an ounce. Silver was down $0.26 or 1.2 per cent to US$22.40 an ounce.

Oil has gained $5.40 or 5.3 per cent to US$107.81 a barrel.

Currencies

One Australian Dollar at 7:30 AM has strengthened from yesterday, buying 72.55 US cents (Wed: 71.00 US cents), 57.45 Pence Sterling, 93.74 Yen and 68.31 Euro cents.

Source: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics