Unlike the Reserve Bank here, the US Federal Reserve followed the script to a T – lifting its key interest rate by 0.25% to a 15-year high of 5% to 5.25% and then sent a hint that it may be about to pause.
The post-meeting statement omitted a sentence present in the central bank’s March comments saying that “the Committee anticipates that some additional policy firming may be appropriate” for the Fed to achieve its 2% inflation goal.”
That was taken to mean the bank will be much more cautious about another rate rise and chair Jay Powell underlined the prospect of a pause by telling his post-meeting press conference that dropping the sentence was a “meaningful change” and that the central bank’s June decision would be driven by incoming data.
It was the US central bank’s 10th consecutive increase in just over a year and the reaction was ho-hum initially but then sold off late.
The Dow closed down 270.29 points, or 0.80%, to end at 33,414.24. The key S&P 500 dropped 0.70% to close at 4,090.75 and the Nasdaq slid 0.46% to close at 12,025.33. It was the third straight day of losses.
Gold jumped by $US25 an ounce to $US2,048.80 on Comex and silver hit a year high of $US25.88 an ounce.
The Aussie dollar was steady at 66.70 US cents in early Asian trading Thursday (having lost most of its gains after the RBA’s surprise rate rise). The greenback lost ground against the yen and the euro and the dollar index was down around 0.6% for the session on the belief that the Fed’s rate increases had ended.
US bond yields eased – the 10-year yield was around 3.43%, down 8 points on the day.
The earlier bullish sentiment was undermined by the Fed chair ruling out cutting interest rates because he did not expect inflation to come down quickly enough.
“In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the Fed said. No room there for any rate cutting sentiment.
Ed Moya, senior market analyst at online forex trading platform Oanda, said Wednesday’s rate increase “will likely be the last one in this cycle.”
“The Fed is concerned that tighter credit conditions will weigh on economic activity and hiring, while helping maintain disinflation trend,” Moya said.
“Credit tightening is about to cripple the economy and it appears that as long as we don’t get a perfect storm of hotter-than-expected labor and inflation data, the Fed will keep rates on hold for at the very least till the end of the year.”
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Apple shares are up more than 30% year to date and the question is will that be it after its usual second quarter buyback and dividend update early Friday, Sydney time?
Meanwhile, judging by the number of stories in business media on Wednesday, Apple will announce weakish revenues and earnings Friday morning our time but tell shareholders its buybacks and dividends this year could be well over $US100 billion.
From 2012 through the end of 2022, Apple spent over $US572 billion on share repurchases.
Apple currently pays a 23 US cents per share quarterly dividend or around $US15 billion a year and last year lifted its buyback by $US90 billion.
Apple spent $94 billion on repurchases over 2022 and given Apple’s historical preference for favouring repurchases over dividends, another big increase to its share repurchase authorisation is a good bet.
Apple had $US165 billion of cash and marketable securities on its balance sheet at the end of 2022 and after debt it still had $US54 billion of cash and securities.
Seeing Apple generates around $US100 billion of free cash flow a year, it has the capacity for a bump in both the dividend (to 25 cents a share a quarter) and a new authorised buyback of $US100 billion.
This will make Warren Buffett very happy – his Berkshire Hathaway is the largest single shareholder in Apple and has lauded its buybacks. It will also make the US government happy with the 1% tax on buybacks raking in billions of dollars.
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And watch for another American regional bank problem. Shares in Pacwest Bancorp slumped 55% in afterhours trading after reports that it is thinking of either selling itself or raising new capital.
PacWest is hoping that to avoid the fate of other regional lenders – Silicon Valley Bank, Signature Bank and First Republic that have been taken over by US regulators in the last two months.
US reports said the Bloomberg report sparked the sell-off.
Los Angeles-based PacWest had a roughly $US772 million market cap and the shares were down 72% year to date before the slide on Wednesday evening.
