Fed cuts deeper with 50-basis-point rise; US markets trend up

In a unanimous decision overnight, the US Federal Reserve has lifted the federal funds rate by 50 basis points to a new target range of 0.75% to 1%, the biggest increase in 22 years.

The hike targets cost-of-living pressures not seen since the early eighties.

The central bank cited strong household spending, wage growth and business investment, while acknowledging the ongoing push factors including the lockdown in China and the Russian war on Ukraine.

Powell flags two more 50-point rises

While this was a big rise, US markets had been betting on an even bigger 75-point rise, and there were fears that this might be on the cards for the next meeting.

Fed chair Jerome Powell ruled this out but flagged that at least two more 50-point rises were on the cards at the next two meetings if the current conditions prevailed.

“Inflation is much too high, and we understand the hardship it is causing, and we’re moving expeditiously to bring it back down,” he said.

“We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses.

“It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.”

US markets rose, ASX expected to follow

Markets in the US appeared untroubled by the rise – perhaps expecting worse – with the Dow Jones up 2.8% to 34,061, the S&P 500 rising nearly 3% to 4,300 and the Nasdaq climbing 3.2% to 12,965. A big single winner was main-street coffee purveyor Starbucks, which rose 9.8% after it reported a 12% gain in North America.

Bond yields sank on the news that Powell wasn’t going to go to 75 basis points this time.

Back home, the Australian dollar jerked upwards again, 2.2% to US72.55¢. This was the largest daily gain in more than a decade, brought on by a weak US dollar. Other world currencies followed a similar trend.

Meanwhile, another bank saw its half-year profits grow, with the NAB recording profits of $3.6 billion, 10.7% higher than the same period a year ago, and revenue of $9.1 billion, a 9.9% increase year on year.

The ASX is expected to open on a strong note when trade begins today, following the US markets.

Qantas acquires mining aviation company

Qantas is set to swallow up Alliance Aviation, a key player in the mining sector, in a deal that will give Alliance shareholders an allocation of Qantas shares. Qantas intends to raise $614 million in a share placement to pay for the deal.

The deal is not expected to impact the existing agreement between the companies under which the Alliance operates jets for QantasLink to regional and remote areas.

Alliance’s fleet of 70 x 100-seater jet aircraft is ideal for flying mining workers to site, accounting for 2% of the total domestic aviation market.

The move comes as news breaks that Qantas has lost its appeal against a Federal Court ruling that outsourcing about 2,000 ground crew workers during the pandemic was illegal.

The company plans to take the case to the high court, arguing that the outsourcing was in response to the pandemic.

In other news

Global oil prices were up by around 5% on Wednesday after the European Commission signaled a phased embargo on Russian oil – Brent crude price rose by US$5.17 or 4.9% to US$110.14 a barrel, while US Nymex crude rose by 5.3% to US$107.81 to barrel.

Base metal prices were a mixed bag – nickel fell by 1.2% while aluminum rose by 1.5%.

Gold futures fell slightly, by US$1.80 or 0.1% to US$1,868.80 an ounce, as did iron ore futures (0.5% to US$142.80 a tonne).

Watch: Peak Asset Management says keep an eye on inflation and rates but “buy the weakness”

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