“Wall Street abandoned mega-cap tech stocks as investors continue to digest the hawkish FOMC dot plots and another round of US data,” Oanda’s Edward Moya said. “The growth outlook still remains upbeat for next year and that some traders rotating back into cyclicals.”
In a morning note, NAB’s Rodrigo Catril said “a new Fed tightening cycle aimed at cooling the economy certainly provides food for thought for high growth stocks, then again this could just be related to squaring positions ahead of an end of the year holiday break.”
Bank of England springs interest rate surprise, ECB holds fire: As the COVID wave chokes off growth, the BoE raises rates to 0.25pc to damp down inflation while the ECB does no more than gently taper its stimulus.
Capital Economics said this week’s shift in monetary policy among key central banks has led it to rethink some of its assumptions: ”we now forecast that the Fed will tighten policy by roughly as much as investors anticipate next year.
“However, we think that investors are still underestimating how far the Fed funds rate will have to rise beyond 2022 in order to get inflation back under control.”
Capital Economics said its rethink “leads us to conclude that the 10-year yield will still rise, but perhaps more gradually than the climb to 2.50 per cent by end-2023 that we had expected”.
It also sees more limited gains for US equities in the coming years and it sees room for further appreciation in the greenback.
Goldman Sachs: “We continue to expect three rate hikes in 2022. We have pulled forward our forecast of the timing of liftoff slightly from May to March, though we see it as a close call, and we expect this to be followed by hikes in June and September.”
The firm also said it continues to expect a terminal rate of 2.5-2.75 per cent, though we now expect the Fed to get there a bit more quickly with three hikes per year in 2023 and 2024.
Local: NZ December ANZ business and consumer confidence
Overseas data: Euro zone December IFO business climate survey; UK December GfK consumer sentiment and November retail sales
ASX futures up 10 points or 0.1 per cent to 7206 near 8am AEDT
- AUD +0.2% to 71.82 US cents
- Bitcoin on bitstamp.net -1.9% to $US48,065.59 as of 8.15am AEDT
- On Wall St: Dow -0.1% S&P 500 -0.9% Nasdaq -2.5%
- In New York: BHP +0.3% Rio +1.9% Atlassian -5.2%
- Tesla -5% Apple -3.9% Microsoft -2.9% Amazon -2.6%
- In Europe: Stoxx 50 +1% FTSE +1.3% CAC +1.1% DAX +1%
- Spot gold +1% to $US1795.35/oz at 2.20pm New York time
- Brent crude +1.8% to $US75.19 a barrel
- US oil +2.3% to $US72.51 a barrel
- Iron ore +4.6% to $US116.06 a tonne
- 2-year yield: US 0.62% Australia 0.64%
- 5-year yield: US 1.18% Australia 1.34%
- 10-year yield: US 1.43% Australia 1.56% Germany -0.36%
- US prices as of 4.16pm in New York
From today’s Financial Review
Tax cuts on the cards despite need for budget repair: The Morrison government is considering a fresh round of income tax cuts on top of a potential $15 billion in unannounced election promises.
Chanticleer: The puzzle facing investors in 2022: Investors have been hit with a deluge of data that suggests while economic growth can keep the earnings recovery going, costs and interest rates remain risks.
The economy is getting better but the budget is not: The decision on whether to extend the LMITO for another year will be a litmus test of how serious both sides are about budget repair.
Frydenberg sidesteps hostile Senate to pass proxy adviser crackdown: New strict independence rules on advisers could signal an end to one of the largest advisers owned by the superannuation sector.
Facebook is set to gain EU antitrust approval for its acquisition of Kustomer after offering remedies that allow rival products to function with those of the U.S. customer service startup, people familiar with the matter said.
The European Commission said it has reached an agreement with Moderna to rush deliveries of the U.S. company’s COVID-19 vaccine to Germany and other EU member states, as cases surge due to the omicron variant.
New car sales in the United States are expected to rise next year, driven by pent-up demand as automakers in 2021 cut production due to pandemic-driven supply chain issues and semiconductor shortages, industry consultant Edmunds said.
Delta Air Lines said it expects to post an annual profit in 2022, as strong domestic holiday bookings helped power its fourth quarter earnings despite fears around the omicron coronavirus variant.
McDonald’s said it had reached a settlement with former chief Steve Easterbrook, resolving a lawsuit in which the burger chain had claimed that he covered up and lied about his sexual relationships with employees.
As part of the settlement, Easterbrook has returned equity awards and cash worth over $US105 million that he received as a severance package in 2019, McDonald’s said in a statement.
European shares had their best day in more than a week, led by gains in banks and miners. The pan-European STOXX 600 index rose 1.2 per cent, while the euro zone index closed up 0.9 per cent.
The European Central Bank only slightly reined in stimulus, as it strives for sustainable economic growth, saying it would wind down its €1.85 trillion Pandemic Emergency Purchase Programme by March.
New data showed euro zone business growth slowed more than expected in December as renewed measures to curb the Omicron coronavirus variant curtailed recovery.
The ECB decision came shortly after the BoE became the first major central bank to raise borrowing costs since the pandemic began.
HSBC Holdings, Lloyds and Barclay’s jumped between 3.2 per cent and 4.6 per cent and were among the top boosts on the FTSE 100 index.
Airbus rose 2.4 per cent after Qantas Airways chose the planemaker as its preferred supplier for its domestic fleet and Air France KLM struck a deal for dozens of narrowbody jets.
IT consulting firm Accenture forecast better-than-expected second-quarter revenue on Thursday, as more clients seek its cloud and security services.
The Biden administration said it is imposing new sanctions on several Chinese biotech and surveillance companies and government entities for actions in Xinjiang province, the latest step against Beijing over human rights abuses of Uyghur Muslims in the country’s western region.
The Commerce Department is targeting China’s Academy of Military Medical Sciences and its 11 research institutes that focus on using biotechnology to support the Chinese military.
China’s blue-chip stock index ended higher on Thursday as gains in industrial and financial sectors offset weakness in consumer staples firms, while energy shares rose thanks to strong oil and coal prices.
At the close, the Shanghai Composite index was up 0.8 per cent at 3675.02 points. The blue-chip CSI300 index was up 0.6 per cent, overcoming small losses earlier in the day.
An index tracking the coal sector surged 6.3 per cent amid a government crackdown on illegal mining that has lifted prices, while a broader energy index added 5 per cent.
At the close of trade, the Hang Seng Index was up 0.2 per cent at 23,475.50. The Hang Seng China Enterprises index rose 0.1 per cent to 8349.65.
Government bonds on issue to peak at $1.2trn in 2024-25: Australian government bond issuance is expected to balloon because of a widening budget deficit heading into a general election next year.
In a Bloomberg oped, Mohamed El-Erian on the Fed’s shift: “This policy change, while seemingly abrupt and drastic, is much needed and highly welcome. That’s the good news. Less good is that it is not sufficiently bold, at least as yet, and especially because it is coming so late.”
El-Erian also wrote: “Powell’s characterisation on Wednesday of inflation and employment is at odds with maintaining a policy approach that is still incredibly expansionary. Moreover, he noted in his press conference that the Fed’s policy moves are influenced by its sensitivity to financial volatility, inadvertently reinforcing the view in markets that, if push comes to shove, the Fed will have no choice but to retain some form of the monetary policy “put” that has proved so remunerative for investors.”
LPL Financial on bitcoin: “While bitcoin’s ultimate use case is a decentralised monetary asset that protects consumers’ purchasing power (“digital gold”), Bitcoin is still early in its adoption phase. It, therefore, is still subject to the same risk profile as an early-stage tech company.
“While many have debated whether the leading cryptoasset is maturing to the point where it is used as an inflation hedge, it is clear that BTC still behaves more like a high-beta tech stock than gold or any asset designed to reciprocate the effects of inflation.”
Seaborne iron ore prices surged higher on Thursday, Fastmarkets MB said, amid a positive outlook for long-term iron ore demand, increased steel prices and the news of Tangshan’s relaxed short-term production-curb policy.
Chinese steelmaking raw materials futures advanced on Thursday, with coking coal up 5 per cent, fuelled by hopes of recovering steel production after stringent curbs in the first 11 months of the year.
The world’s top steel producer churned out 946.36 million tonnes of the metal during January to November, down 2.6 per cent from the same period last year, in an accelerating decline driven by strict output curtailment.
Huatai Futures wrote in a note that since targets for crude steel output have now been met, some mills are resuming production and profitability is relatively good.
Zinc prices jumped more than 5 per cent on Thursday on supply concerns after Belgium-based Nyrstar said it would shutter its plant in France from January due to soaring power prices.
The plant, which also produces lead, is the latest to fall victim to higher gas prices, including Glencore’s Portovesme plant and some of Nyrstar’s other European operations.
Benchmark three-month zinc on the London Metal Exchange (LME) had jumped 5.7 per cent to $US3455 per tonne by 1740 GMT, its highest since October 25.
LME copper prices rose 3.2 per cent to $US9499 per tonne. Aluminium rose 3.2 per cent to $US2680 a tonne, lead climbed 1.5 per cent to $US2318, tin advanced 2.1 per cent to $US38,745 while nickel was up 2.7 per cent to $US19,625.
CSL drags ASX into the red on upbeat day: An otherwise upbeat session was marred by a heavy fall on Thursday by CSL, which dragged the Australian stock exchange lower for a third straight session.
The 20 worst-performing super funds in APRA’s performance test: Rest Super is among seven funds that scraped through by a few basis points, while 13 fell short of the required benchmark.