US Fed signals 2 rate rises by end of 2023, Wall St falls as yields jump, Why Seek is a buy: ASX to lift


The Australian sharemarket is set to lift with the SPI futures pointing to a 0.1 per cent gain as the US Federal Reserve signalled two interest rates rises by the end of 2023. US stocks closed in the red as bond yields rose after officials brought forward expectations on interest rate hikes, sooner than they previously planned.

The S&P 500 dropped by 1 per cent in afternoon trade after policymakers forecast they would raise short-term rates by half a percentage point. This would affect consumer and business lending like mortgages and car loans. Federal Reserve Chair Jerome Powell also talked about the possibility of pulling back its US$120 billion monthly bond purchase program, which is meant to keep longer term rates low. Though maintained its pace until “substantial further progress” has been made in the economic recovery. The central bank held interest rates steady.

Ultra-low interest rates have been one of the main drivers for the bull-run on stockmarkets with record highs peaked in recent times. Investors reacted to the central bank’s comment which sent stocks lower while bond yields rose. The 10-year treasury yield climbed 8 basis points to 1.58 per cent while the yield on the two-year rose 4 basis points. Economists are concerned that higher inflation rates eats away the fixed yields of bonds.

The forecasts follow a rapid economic recovery and increased concerns about inflation, which has been higher than expected. The Labor Department’s consumer price index rose 5 per cent in May from a year earlier. The Fed officials signal they expect inflation to rise 3.4 per cent in the forth quarter of 2021 from a year earlier, up from a March forecast of 2.4 per cent.

The Dow Jones Industrial Average fell 0.8 per cent to 34,034. It fell as low as 364 points shortly after the announcement. The tech heavy Nasdaq fell 0.2 per cent while the S&P 500 shed 0.5 per cent.

Across the Atlantic, European markets closed mixed: London’s FTSE and Paris gained 0.2 per cent and Frankfurt closed 0.1 per cent lower.

While in Asian markets, they closed lower. Tokyo’s Nikkei fell 0.5 per cent, Hong Kong’s Hang Seng lost 0.7 per cent and China’s Shanghai Composite closed 1.1 per cent lower.

On the commodities front, oil prices rose for their fifth day by $0.03 to US$72.15 a barrel amid a rise in demand while iron ore lost 3.5 per cent to US$214.08 which saw mixed performances across the Atlantic. BHP added 0.1 per cent while Rio Tinto shed 0.1 per cent. Its futures are pointing to a 0.3 per cent gain.

On the precious metals front, gold gained $5.00 to US$1861 an ounce against the strenghtened greenback while silver added $0.12.

ASX 200 - Wednesday wrap

Yesterday, the Australian share market closed 0.1 per cent higher at 7,386 as the index closed in the black for its fourth straight session. The local bourse punched above 7,400 for the first time but lost momentum due to heavyweight mining giants. News on China's efforts to rein in on commodity prices caused BHP (ASX:BHP) and Fortescue Metals (ASX:FMG) to fall over 1.6 per cent while Rio Tinto (ASX:RIO) shed 0.6 per cent. China reportedly told state-owned companies to limit their exposure to overseas commodities markets. Woodside Petroleum (ASX:WPL) enjoyed the spotlight after it rose 2.3 per cent which boosted Energy to take home the best performing sector after oil prices rose to their highest level in more than two years. Financial shares were the next best with Commonwealth Bank (ASX:CBA) extending its all-time high by 1.32 per cent to $104.82. Elsewhere, mouthguard technology provider HitIQ (ASX:HIQ) rose by 15 per cent after making its debut on the ASX.

Local economic news

Today RBA Governor Philip Lowe's will make a speech “From Recovery to Expansion” followed shortly by the May jobs data from the Australian Bureau of Statistics on clues for future direction on monetary policy.

Broker moves

Macquarie rates Seek (ASX:SEK) as a buy with a price target of $40. The upgrade follows the broker’s estimates following the removal of the recruiter discount. After calculation, a 9 per cent yield is anticipated. The broker is forecasting a fall in the unemployment rate to 4 per cent during 2023 noting that ad volumes and the labour market are strongly correlated. Macquarie sees Seek as a "quality" stock and raises its target price to $40.00 from $31.60. Shares in Seek (ASX:SEK) closed 2.27 per cent higher at $32.94 yesterday.

IPOs

Today Arcadia Minerals (ASX:AM7) and Gefen International A.I (ASX:GFN) are set to make their debut on the ASX.

Ex-Div

CD Private Equity I (ASX:CD1) is paying 40 cents unfranked.
CD Private Equity II (ASX:CD2) is paying 34 cents unfranked.
CD Private Equity III (ASX:CD3) is paying 12.5  cents unfranked.

Currencies

One Australian Dollar at 7:45 AM was buying 76.16 US cents, 54.44 Pence Sterling, 84.27 Yen and 63.49 Euro cents.

Commodities

Iron Ore has lost 3.5 per cent to US$214.08.
Iron Ore futures suggest a 0.3 per cent gain.
Gold has gained $5.00 to US$1861 an ounce.
Silver has gained $0.12 to US$27.81 an ounce.
Oil has added $0.03 to US$72.15 a barrel.
 

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