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Hawkish Fed knocks ASX from its record-setting perch

Daily Market Update

Rough day as rate hike hits, Challenger, Seven, Coles offer market updates

The ASX 200 (ASX: XJO) finished down 0.4% on Thursday in what some are calling a sell-off after news that the Federal Reserve may hike interest rates earlier than expected, in 2023.

Markets took this with a grain of salt, not selling off heavily, ending more focused on the positive economic data.

Only five of the eleven sectors managed a gain, led by IT and financials, which were 1.3% and 0.8% higher with investment platform Netwealth Group Ltd (ASX: NWL) the strongest, up 5.2%.

Both energy and materials felt the brunt of the sell-off, down around 1.8% each as the trend continues to turn; BHP Group Ltd (ASX: BHP) fell 1.4% but it was Whitehaven Coal Ltd (ASX: WHC), down 11.5% after downgrading production, that fell hardest.

Coles Group Ltd (ASX: COL) tanked 4.5% after the board flagged a significant increase in capital expenditure, increasing to $1.4 billion in fiscal 2022.

Investors saw this negatively and potentially as a threat to the high dividend payout, with the company flagging further investment in automation and refurbishments as it seeks to keep up with Woolworths Group Ltd (ASX: WOW) and Aldi, with the former only down 0.8%.

Challenger reaffirms guidance, upgrades 2022, Seven performing well, unemployment falls

After initially being reported as a downgrade, Challenger Ltd (ASX: GCF) actually reaffirmed guidance for FY21, citing its significant capital buffer and leading funds management business, called Fidante, as key drivers.

Earnings are expected to be between $390 and $440 million with expectations for 2022 showing 10% earnings growth to finish between $390 and $440 million. Challenger shares were down just 1.8%.

Shares in Seven West Media Ltd (ASX: SWM) jumped 23.8%, tops for the market, after confirming earnings would be ahead of current consensus, landing between $250 and $255 million for the financial year.

Trading conditions have improved with advertising revenue on its TV network growing strongly, up 45% in the quarter, and audience share increasing year on year.

Similar to News Corp (ASX: NWS), the company has seen digital earnings double, growing 130% to $60 million, with another doubling expected in 2022.

It was revealed yesterday that the unemployment rate in May fell to February 2020 levels, hitting just 5.1%, down from 5.5% in the previous month, with 97,000 new jobs created.

Importantly, the participation rate also increased by 0.3%, offering an interesting insight into an economy where it seems businesses are seeking to cut costs or closing down as the public sector increases their headcount.

Nasdaq hits record, value rotation on hold, markets digest rate news

The so-called reflation trade that has seen everything from cruise and airlines to commodities and oil companies rally strongly since November has slowed this week, culminating in another 0.6% fall in the Dow Jones overnight. 

Despite news that the Federal Reserve may hike rates earlier than expected, big tech names including Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), and Facebook (NASDAQ: FB) have been resilient with investors clearly focused on their huge free cash flow and more reasonable valuations compared to late in 2020.

The Nasdaq jumped 0.9%, hitting another record with NVIDIA (NASDAQ: NVDA) a key contributor, up 4.7% and Amazon also up 2.2%.

A flow on from Wednesday’s Fed meeting was a strengthening in the USD, unexpected to many, which has seen the AUD weaken in a boon for our global leaders and miners.

Copper has now fallen to a two-month low, after consistently hitting records in 2021, this follows the Chinese government’s announcement to focus on reducing speculation in the price.

Software and design provider Adobe (NASDAQ: ABDE) finished 1.5% higher after another strong quarter of growth with revenue 23% higher.

Digital media grew 25%, creative 24%, and most importantly Document Cloud was 30%, showing the sheer opportunity for these online businesses and why investors continue to flock to the sector.

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