Fed raises rates and hints hikes could end

The Dow finished 270 points lower on Wednesday, while the S&P 500 and Nasdaq 100 fell nearly 0.7% and 0.5%, respectively, as investors weighed comments from Fed Chair Powell at the press conference that signalled no rate cut is on the table if inflation remains high.  Earlier, Wall Street enjoyed some respite on growing expectations the central bank will pause interest rate hikes, following yesterday’s expected 25 bps increase.  Adding to Fed concerns, the latest ADP data showed that private payroll job growth in April surpassed expectations, indicating that the labour market remains tight.  Also, the ISM report showed that the US services sector expanded for the 4^th consecutive month.  In contrast, European equity markets managed to hold on to their gains yesterday, with the Euro Stoxx 50 Index up 0.4%. 

Summary for 04.05.2023 

• Most Asian equity markets kept to a tight range on Thursday as investors mulled over rising interest rates and a worsening economic outlook, although strong holiday figures from China supported local shares. 
• European and US equities are headed for a cautious start as traders mull the Fed’s policy path and await the ECB’s rate decision later today.  
• Oil prices rose in early Asian trade this morning, vying to snap a three-day losing spree amid potential supply disruptions in Iran and Russia, although fears of weakening economic growth and demand kept sentiment dim. 

• The Caixin China General Manufacturing PMI unexpectedly fell to 49.5 in April from 50.0 in March, missing market forecasts of 50.3.  The latest result was the first contraction in factory activity since January, amid an ongoing property downturn and fears of a global slowdown. 
• Federal Reserve Chair Jerome Powell hinted the US central bank’s latest interest-rate increase could be the last one, but stopped short of declaring victory in the battle against rapid price increases. Powell left the door open for officials to keep raising borrowing costs if inflation remains more stubborn than they expect, and pushed back strongly against market expectations that the Fed will be cutting rates by year-end. The message suggests officials will resist backing down on their inflation fight even if the US economy begins to falter.   
• Private businesses in the US created 296k jobs in April, well above a downwardly revised 142k in March and beating forecasts of 148k.  This marked the strongest employment report since last July, with pay gains slowing rapidly and fewer people switching jobs. 
• The seasonally-adjusted unemployment rate in the Euro Area decreased slightly to 6.5% in March, marking the lowest rate on record and coming in just below market expectations of 6.6%.  This latest figure represented a drop from last year’s rate of 6.8% and reflected a tight labour market.  Coupled with high inflation, this trend gives the ECB more leeway for policy tightening. 
• CVS Health’s earnings exceeded expectations yesterday as robust pharmacy numbers offset a decline in Covid vaccine testing volume, but the company lowered its 2023 forecast.  Shares fell 3.7%. 

• Kraft-Heinz beat EPS and revenue expectations and raised its full-year EPS guidance to $2.83-$2.91 from $2.67-$2.75 previously, citing strength in its food service, emerging markets, and US retail businesses.  Its shares rose 2%. 
• Estee Lauder reported earnings of 47 cents per share, about 4 cents under expectations.  The makeup company also lowered its full-year EPS guidance to $3.29-$3.39 from a previous outlook for $4.87-$5.02, citing slower than expected recovery in Asia.  Shares fell more than 17%. 
• Starbucks reported adjusted EPS of 74 cents, about 9 cents above expectations, and revenue at $8.72 billion, surpassing forecasts for around $8.41 billion.  But the coffee chain’s guidance appeared to disappoint investors, as shares fell over 9%.