ASX 200 to rally, S&P 500 and Dow hit all-time highs as Fed maintains rate cut projections

ASX 200 futures are trading 49 points higher, up 0.63% as of 8:30 am AEDT.

S&P 500 SESSION CHART

ASX TODAY

• ASX 200 set to soar following strong lead from Wall Street
• Gold stocks set to rally after prices for the commodity rallied to all-time highs
• Other sectors set for a strong session include copper, uranium, tech, retail
• CSL granted orphan drug designation from FDA for autologous cell therapy for Wiskott-Aldrich Syndrome
• Cettire customers note issues with duty chargers (AFR)
• Downer EDI gets ready to reboot mineral processing division auction (AFR)
• Electro Optic Systems seeking to raise up to $40m (AFR)
• Incitec Pivot fertiliser unit sale drags on with Pupuk Kaltim (The Australian)

BROKER MOVES

• Arafura Rare Earths downgraded to Hold from Buy with 19 cent target (Bell Potter)
• Bapcor upgraded to Equal-weight from Underweight and target increased to $5.75 from $5.00 (Morgan Stanley)
• Boral reinstated Buy with $7.13 target (BofA)
• Evolution Mining upgraded to Overweight from Equal-weight and target increased to $3.95 from $3.35 (Morgan Stanley)
• Iperionx initiated speculative Buy with $3.70 target (Bell Potter)
• Karoon Energy initiated Overweight with $2.71 target (Wilsons)
• Nickel Industries initiated Overweight with 95 cent target (Morgan Stanley)
• Sonic Healthcare upgraded to Neutral from Underweight and target increased to $26.20 from $26 (JPMorgan)
• Woolworths upgraded to Outperform from Neutral but target decreased to $35 from $36 (Macquarie)

MARKETS

• S&P 500 finished higher and rallied after the FOMC decision/press conference
• S&P 500 notched another record high, pushing through the 5,200 level
• Big tech, semiconductors, discretionary and small caps among best performers
• Fed left rates unchanged at 5.25% to 5.50% as widely expected and kept its median dot unchanged at three rate cuts for 2024
• Bond yields lower after recent six-session streak, US 2-year yield now down 13 bps in the last two sessions
• Gold prices surge on somewhat dovish Fed, marking a new record close of US$2,185
• Synchronised global central bank easing expected to support dollar (Bloomberg)
• US crude inventories drop 1.5m barrels for the week ending 15-March while analysts expected slight build (OilPrice.com)

INTERNATIONAL STOCKS

• Chipotle board approves 50-1 stock split (Bloomberg)
• Cisco Systems closes $28bn all-cash acquisition of cybersecurity and analytics company Splunk (MSN)
• Boeing exploring divesting two of its defense businesses amid 747 crisis (Bloomberg)
• Intel awarded up to $8.5bn in direct funding form federal government through CHIPS Act grants (CNBC)

CENTRAL BANKS

• Fed sees three interest rate cuts in 2024 but forecasts fewer cuts in 2025 (Bloomberg)
• No clear consensus on follow-up BOJ rate hike or terminate rate (Bloomberg)
• BOJ cutbacks to upper limit of JGB purchase range seen as meaningful (Reuters)

GEOPOLITICS

• Trump now says US will "100%" remain in NATO, provided EU countries meet their funding commitments (Politico)
• US mulls blacklisting several Chinese firms linked to Huawei (Bloomberg)
• Netanyahu vows Israel will proceed with ground assault on Rafah to eliminate remaining Hamas battalions (FT)
• UK chancellor Hunt hints general election may be held in October (FT)

ECONOMY

• UK headline inflation slowest since September 2021, services remain sticky (Bloomberg)
• China keeps loan prime rates unchanged, in-line with expectations (Bloomberg)
  
  

The Fed Decision

The Fed kept rates on hold between 5.0% and 5.25%, in-line with market expectations. But there were several dovish takeaways from the decision and press conference.

The Fed's dot plot upgraded economic projects (compared to their December forecasts) including:

• 2024 real GDP growth of 2.1% (up from 1.4% in December)
• 2024 nominal GDP growth of 4.5% (from 3.8% in December)
• 2024 unemployment rate of 4.0% (down from 4.1% in December)
• However, 2024 core PCE inflation of 2.6% (up from 2.4% in December)
• But still forecasted 3 rate cuts by year end

While policymakers see the federal funds rate easing to 4.6% by the end of 2024, individual expectations were split – The dot plot showed 10 officials expecting three or more 25 bp cuts this year while nine anticipated two or less.

As for Powell's commentary, here are some of his key comments:

• Rate outlook: "We are prepared to maintain the current target range for longer if appropriate ... If the economy evolves going forward, the appropriate level of the federal funds rate will be 4.6% at the end of this year, 3.9% at the end of 2025 and 3.1% at the end of 2026."
• Rate outlook: "We believe that our policy rate is likely at its peak for this time in the cycle and if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year."
• Inflation outlook: "We will get aggregate inflation down to 2% over time , we will. I will assume that we will continue to see goods prices coming in to a new equilibrium ... where housing services inflation will come back down as current market rents are suggesting that will happen."

Overall – Powell was somewhat dovish and looking for reasons to cut. He flagged that January and February CPI and PCE was high and possibly due to seasonal effects. The story hasn't changed and inflation is coming down gradually. The Fed still seeks greater confidence that inflation is moving sustainably down before making its first rate cut. The data could get tricky later in the year due to base effects for the previous 12 months (cycling disinflation in the second half of 2023). Despite all this, the Fed still expects to see three rate cuts by year end. Although the dot plot implies only two rate cuts in 2025 and 3 cuts in 2026 (a little less than what the market was expecting).

KEY EVENTS