ASX jumps as Fed chief cheers up Wall Street
By Najma Sambul
The Australian sharemarket has gone up on Thursday morning with tech leading the surge, after Wall Street climbed to its best level since August after the latest US Fed meeting.
The S&P/ASX200 gained 32.60 points, or 0.43 per cent, to 7,534.30 at 10.15 am AEDT after Wall Street surged higher overnight. As expected, the Fed raised its benchmark interest rate by 0.25 percentage points to its highest level since late 2007 but investors cheered comments from Fed chair Jerome Powell signalling the economy is on the path toward getting inflation lower.
That set up the Australian sharemarket to rise and information technology, consumer discretionary, and communication services have lifted the bourse in early trade. Seek, Xero, and WiseTech were the top performers at the open, up 6.48 per cent, 6.08 per cent, and 4.86 per cent, respectively.
The energy sector lagged, while big miners Rio Tinto, BHP, and Fortescue, were all in the red. Rio Tinto led the losses at 2.44 per cent and oil and gas giant Woodside was down 1.65 per cent.
Overnight, Wall Street’s benchmark S&P 500 rallied back from an early 1 per cent loss to close 1 per cent higher after Powell’s media conference. The Dow Jones Industrial Average erased a drop of 500 points to rise by 6 points, while the Nasdaq composite jumped 2 per cent.
What’s more important for markets is where interest rates are heading next.
The Fed’s Powell did reiterate that “ongoing increases” in interest rates will be needed to bring inflation down to the Fed’s target level. And he said it was still way too early to declare victory over inflation.
But he also said, “We can now say, I think for the first time, that the disinflationary process has started.” That got Wall Street thinking about a future with no more rate increases.
“He had the opportunity to use his voice to tamp down market expectations, and he didn’t do it,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management. “Anyone that had taken a bet that the Fed was going to come out hard on financial positions lost that bet.”
Higher interest rates try to snuff out inflation by slowing the economy and dragging on prices for stocks and other investments. The Fed has already pulled its key overnight rate to its highest level since 2007, at a range of 4.50 per cent to 4.75 per cent, up from virtually zero early last year.
At stake is the economy, which many investors see likely heading down one of two paths: either a relatively short and shallow recession or a much deeper and more painful one. Building hopes for the former helped stocks rally through January to a strong start of the year.
Powell indicated he’s on the more optimistic side.
“My base case is that the economy can return to 2 per cent inflation without a really significant downturn or really big increase in unemployment,” he said.
He also said he did not foresee any rate cuts this year.
Reports on Wednesday gave a mixed picture on hiring. Private payrolls rose by 106,000 in January, according to ADP. That’s a slowdown from a month earlier and was below economists’ expectations.
But a separate report from the US government indicated more strength. It said the number of job openings increased to 11 million in December, better than expected.
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Source: Thanks smh.com