by Peter Milios
Overnight, The Federal Reserve has raised interest rates by 0.5 per cent to its highest level in 15 years, highlighting that the fight against inflation is not over despite some positive signs lately, such as the better than expected CPI data.
At noon, the S&P/ASX 200 is 0.2 per cent lower at 7238.
Consumer Discretionary, Communication Services, and Materials were the sectors hit worst by the news, suffering the biggest losses at lunch.
The SPI futures are pointing to a fall of 23 points.
Best and worst performers
The best-performing sector is Consumer Staples, up 0.57 per cent. The worst-performing sector is Consumer Discretionary, down 0.72 per cent.
The best-performing large cap is New Hope Corporation (ASX:NHC), trading 4.66 per cent higher at $6.06. It is followed by shares in Whitehaven Coal (ASX:WHC) and Endeavour Group (ASX:EDV).
The worst-performing large cap is Pilbara Minerals (ASX:PLS), trading 10.2 per cent lower at $4.07. It is followed by shares in IGO (ASX:IGO) and Allkem (ASX:AKE).
Asian news
Asia-Pacific markets traded lower after the U.S. Federal Reserve raised its benchmark interest rate by 50 basis points to the highest level in 15 years.
The S&P 500 snapped a 2-day winning streak following the decision, with major averages hitting session lows after Fed Chair Jerome Powell signalled more data was needed before the central bank would meaningfully change its view on inflation.
FOMC downshifts to 50bp but raises peak-rate forecasts
FOMC raised rates by 50bp today in a unanimous decision, downshifting as expected from its recent 75bp pace. Meeting statement nearly unchanged from November, with no change to language saying “ongoing” rate increases may be appropriate (vs expectations for some softening). More attention on new Summary of Economic Projections (SEP), which showed median policymaker projection for 2023 rates up 0.6pp to ~5.1% from September’s edition, higher than some analysts’ forecasts for ~4.9%. The 2024 and 2025 rate forecasts were raised as well. SEP also showed lower forecasts for 2023 GDP and higher PCE inflation expectations. Early takes suggest a soft landing, though with narrower margins. In a post-meeting press conference, Powell reiterated policy still isn’t sufficiently restrictive, though policy decisions will be made on a meeting-by-meeting basis, dependent on incoming data. Despite Powell playing down the idea of rate cuts in 2023 (repeatedly citing the new SEP), CME’s FedWatch tool shows market still pricing in two cuts in 2H-23 after hitting a peak of 4.75-5.0% by March.
Margins the big area of scrutiny for 2023 earnings
Margins a key area of scrutiny when it comes to 2023 earnings. According to FactSet, estimated net profit margin for S&P in 2023 is 12.3%, ahead of the expected 12.0% for 2022 and the 10-year average of 10.3%. Report noted that a 12.3% net profit margin would mark the second-highest since FactSet began tracking the metric in 2008. Current record is 12.6%, which was seen in 2021. A number of strategists have flagged downside risks to 2023 margins after 3Q22 margins declined y/y for the first time since the pandemic. Focus has largely been on an increasingly challenging macro/demand backdrop and elevated wage inflation. While disinflation is expected to be a big theme in 2023, there are negative implications for S&P 500 revenues following 2022 in which pricing power provided a big cushion. Credit Suisse has also pointed out that margins tend to move with changes in commodity prices and PPI. On a more positive note, some focus on potential for margins to remain resilient as companies step up cost-cutting efforts and supply chain constraints ease.
Company news
Peregrine Gold (ASX:PGD) has announced Ultra High-Grade Gold and Silver results from its Birdsnest Costeans prospect in WA. The company also returned higher gold grades at their Peninsula prospect. In response, Mr George Merhi, Peregrine’s Technical Director, commented: “This costean programme conducted after the RC drilling has provided valuable information on the orientation of the mineralisation in 2D.” Shares are trading 30.51 per cent higher at $0.385.
Global Lithium Resources Limited (ASX:GL1) has announced that it has delivered a transformative 50 Million tonnes in their lithium resource base. This represents a 230% increase in their Manna project and a 71% increase in their Marble Bar project. Global Lithium Managing Director, Ron Mitchell commented, “These game-changing Mineral Resource upgrades, at our 100%-owned Western Australian hard-rock lithium projects, are a great outcome for GL1 following the nearly 85,000m exploration programs we have undertaken safely during 2022.” Shares are trading 1.98 per cent lower at $1.98.
Tinybeans Group (ASX:TNY) has provided investors with an end of year review and an outlook update for calendar 2023. Some highlights include that consumer revenues were up 60%, and a reduction in operating expenses for the quarter to under US$3M from nearly US$4M in less than 6 months. Shares are trading 22.22 per cent higher at $0.22.
Commodities and the dollar
Gold is trading at US$1817.30 an ounce.
Iron ore is 0.5 per cent lower at US$109.75 a tonne.
Iron ore futures are pointing to a 1.6 per cent gain.
One Australian dollar is buying 68.65 US cents.
