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Highlights
The US Federal Reserve has hiked interest rates by a three-quarter of a percentage point.
The Fed also said that either a 50 or 75 bps rate increase at its next policy meeting seemed most likely.
The Australian share market rebounded on Thursday, breaking its four-day losing streak.
Much on expected lines, the US Federal Reserve has hiked interest rates by a three-quarter of a percentage point or a 75 bps, the biggest increase since 1994, to tame rising inflation. Additionally, Fed Chair Jerome Powell said that either a 50 or 75 bps rate increase at its next policy meeting in July seemed most likely and that the economy was strong enough to handle a tighter policy.
Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures," the Fed’s policy-setting Federal Open Market Committee said in a statement Wednesday at the end of its latest two-day meeting in Washington.
The move increased the short-term federal funds rate to a range of 1.50% to 1.75%. Fed officials at the median projected the rate rising to 3.4% by the end of 2022 and to 3.8% in 2023.
How did the ASX 200 react in the early trade?
The Australian share market rebounded on Thursday, breaking its four-day losing streak, following a robust overnight trade on Wall Street. Investors seem to be relieved that the Fed didn't surprise with a rate hike bigger than market expectations.
By 12 PM (AEST), the All-Ordinaries index had risen 0.65%, to 6,830.20. The ASX 200, the top 200 companies index, had jumped 0.46% to 6,631.40 even as it gave away some of its early gains.
The interest rate-sensitive Information Technology sector surged 1.46% following Wall Street’s lead. Communication Services and Real Estate were also up more than 1.7%.
Barring Bank of Queensland, which was up 1.31%, other banks were trading on a weak note. Lenders generally benefit from higher rates as they receive more revenue from borrowers. However, banks were trading in the red today on concerns that rapid rate hikes could result in a recession.
The Australian dollar surged against the greenback. It rose over 1 US cent overnight. It was trading at 70.04 US cents, down 0.18%.
Meanwhile, in overnight trade, the Dow Jones rose 1%, the S&P 500 surged 1.45%, and the NASDAQ ended 2.5% higher. The S&P 500 rallied on Wednesday to snap a five-session losing streak, which was its longest since early January.
Top performing ASX 200 sectors in the first hour of trade
- The ASX 200 Resource Index (ASX:XJR), up 1%
- The ASX 200 Financials Index (ASX:XFJ), up 1.2%
- The ASX All Technology Index (ASX:XTX), up 1.3% (The index contains some stocks outside of the ASX 200 shares)
What to expect from ASX 200?
The Australian share market bounced back from Tuesday’s AU$116 billion ASX wipe-out and further losses on Wednesday.
The ASX 200 showed positive signs today despite concerns about the overnight rate hike by the Fed, implying moderately good news for Australian investors.
Positivity seems to be emanating from the Fed’s assurance that 75 basis point increases would not be a new normal. It may have eased investors’ concerns about a potential series of hikes of similar magnitude.
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