(AUSTRALIA) – ASX – Australian equities are preparing for a bearish start as the S&P 500 experiences a reversal due to changing interest rate forecasts.
The uncertainty surrounding another rate hike later this year and postponed rate cuts until 2024 has influenced market sentiment.
In the US, two-year Treasury yields have surged to levels not seen since 2006, while the 10-year yield reached above 4.40 percent in late New York trading hours.
ASX futures have declined by 16 points or 0.2 percent to 7,155 around 7 a.m. AEST, after initially showing an increase of more than 20 points.
ASX braces for potential decline
Matt Simpson, Senior Market Analyst at City Index, stated, “We’re not expecting miracles on the ASX 200 today, but given it fell three days leading into the [Fed] meeting … it may not be a complete disaster today either.
The key question is whether it can cling on to trend support from the March 2020 low, as failure to do so likely brings the 7100 and 7000 handles into focus.”
As anticipated, the Federal Reserve’s policymakers, in their statement at 4 a.m. AEST, have voted to maintain rates steady this month.
However, they have left room for a potential additional quarter-point rate increase later this year and have indicated a slower transition to rate cuts in 2024.
The Federal Open Market Committee (FOMC) has retained its target range for the federal funds rate at 5.25 percent to 5.5 percent.
Updated quarterly projections reveal that 12 of 19 officials favor another rate hike in 2023, emphasizing the commitment to ensuring that inflation continues to decelerate.
Fed Chairman Jerome Powell emphasized at a press conference following the policy decision, “We are committed to achieving and sustaining a stance of monetary policy that is sufficiently restrictive to bring inflation down to our 2 percent goal over time.”
NAB’s morning note humorously referred to Britney Spears’ hit single, ‘Baby One More Time,’ and suggested that Powell’s statements represented a “hawkish pause” in line with expectations.
Morgan Stanley’s Chief Economist, Ellen Zentner, indicated that despite the hawkish stance, they anticipate data flow to hold the policy rate steady at 5.375 percent.
She suggests that real rates are already restrictive and will become more so over time, allowing the Fed to begin quarterly 25bp cuts starting in March 2024.
In New York, Klaviyo, a marketing and data automation provider, made a remarkable debut in its trading, surging as much as 32 percent beyond its initial public offering range. However, it closed up 9.2 percent due to the broader market downturn.
Instacart experienced a 10.7 percent decline in its second day of trading, and Arm Holdings saw a 4.1 percent decrease.
The Australian dollar was 0.1 percent lower at 6:20 a.m., reversing earlier gains that had briefly pushed it above US65¢.
In the cryptocurrency sphere, Bitcoin showed a 0.1 percent increase to $27,134 at 7:17 a.m. AEST.
The US 10-year note yield rose by 5 basis points to 4.41 percent, having previously flirted with 4.30 percent. The two-year yield reached 5.18 percent.
Goldman Sachs Group is reportedly in advanced discussions to sell its GreenSky unit to a consortium, including Sixth Street Partners.
Goldman Sachs Asset Management has successfully raised $14.2 billion for a new fund aimed at acquiring stakes in private equity funds.