Morning Bell – Fed rate hike and Transnet recovery

Last night, the Federal Reserve raised interest rates by 75 basis points for the second straight month, delivering the most aggressive tightening in more than a generation to curb surging inflation.

Comments by Fed Chairman Jerome Powell about the pace of rate hikes were well received by investors.

The Nasdaq jumped more than 4%, and the S&P 500 growth index jumped 3.9%, its biggest one-day percentage gain since April 2020.

On the local front, Karooooo, Arcelormittal, and Transnet released results, summarised below.

• The US Federal Reserve announced its second consecutive rate hike of 75 basis points on Wednesday, continuing on the fastest monetary policy tightening path since the 1980s. It was in response to very high inflation – 9.1% year-on-year – that was released on 13 July. The Fed’s target range is now 2.25% – 2.50%.

• The Fed will take a breather next month, with the next FOMC meeting announcement due on 21 September. The September meeting will also include an update to the Summary of Economic Projections. The current consensus expectation is for a 50 basis point hike in September.

• US markets rallied following the meeting, with the S&P 500 closing the day up 2.6%.

• Meta (Facebook) missed earning expectations after markets closed on Wednesday, showing the first year-on-year revenue decline for the company. Net Income fell by 36%. Facebook’s daily active users missed expectations but still stand at a respectable 1.95 billion. Facebook, Instagram and Whatsapp all still showed growing daily active users.

• The US Senate passed a bipartisan bill to subsidise US-made semiconductor chips. The $280 billion “Chips and Science Act”, informally known as CHIPS-plus, includes $52 billion in funding for US companies producing semiconductor chips and a provision to offer tax credits for investments in chip manufacturing. The bill is still due for a final passage by the House, where Speaker Nancy Pelosi has indicated that it has support.

• Karooooo released its first quarter results for 2023. Total subscribers increased 13% to just over 1.5 million. Total revenue increased 28% to R800 million, and earnings per share (EPS) increased 42% to R4.96.

• ArcelorMittal released its financial results for the 6 months ended 30 June 2022. Headline earnings increased 22% to R3 billion on the back of a 23% increase in realised dollar steel prices. The company reduced its net debt by 61% to just under R1.1 billion.

• Transnet showed a promising recovery, reporting a R5 billion profit for the year ended March 2022. It is up R13 billion from the reported loss of R8 billion in the previous financial year. The move was largely based on a R11 billion increase in its investment property portfolio valuation. Revenue increased by 1.8% to R68.5 billion.