Australian shares opened higher on Thursday despite a retreat on Wall Street after the Federal Reserve delivered its first interest rate rise in three years and signalled that another increase could follow. The S&P/ASX 200 rose 26 points, or 0.3%, to 8,722.50 by 10.24am local time.
Seven of the Australian market’s 11 sectors were in positive territory, extending a 0.3% gain from the previous session. The Australian dollar was little changed at US70.90¢.
The stronger opening came despite futures having pointed to a sharp decline. Falling oil prices helped sentiment, with signs that disruption to Middle Eastern supplies may be easing.
West Texas Intermediate crude moved towards US$102 a barrel after dropping 3.2% on Wednesday, its biggest one-day fall since August 4. Brent crude closed near US$106, having approached US$110 in recent days.
Saudi Arabia is seeking to restore about half the capacity of its damaged East-West pipeline within days and return it to full operation within six weeks, according to a person familiar with the matter.
“I wouldn’t call it an all-clear situation,” said Haris Khurshid, chief investment officer at Karobaar Capital. “The market is getting some capacity back, but it isn’t getting its margin for error back.”
Wall Street slips after Federal Reserve rate rise
US stocks initially held on to modest gains after the Federal Reserve’s decision, but weakened as chairman Kevin Warsh repeatedly warned that inflation remained too high and the economy appeared to be strengthening.
The S&P 500 ended 0.4% lower, while the Dow Jones Industrial Average fell 1.2%. The Nasdaq composite was almost flat, slipping by less than 0.1%.
The Fed raised its main interest rate from a range of 3.75% to 4% and indicated that borrowing costs may need to move higher as it attempts to bring inflation back to its 2% target.
“We removed a dose of accommodation so that financial and credit conditions would be more consistent with our ultimate objectives,” Mr Warsh said. “Today’s action starts to show we’re serious about this, and we will deliver on the price stability objective.”
Forecasts published after the central bank’s meeting showed the median Fed official expects the federal funds rate to end the year at 4.1%. That is above the current range and higher than the 3.8% median forecast issued three months ago.
Traders are pricing in a 38% probability that the rate could rise to between 4.25% and 4.50% by the end of the year. Nathan Thooft, a senior portfolio manager at Manulife Investment Management, said Mr Warsh’s remarks were “much more bluntly hawkish than investors expected”.
The prospect of further rate rises weighed particularly heavily on banks. Huntington Bancshares fell 5.6%, Citizens Financial Group dropped 4.8% and JPMorgan Chase lost 1%.
US Treasury yields also moved higher, with the two-year yield rising to 4.74% from 4.67%. The 10-year yield edged up to 5.01% from 5%.
Gains among some artificial intelligence companies helped contain the wider losses. Nvidia rose 0.8% and Advanced Micro Devices gained 1.6%, while Microsoft fell 1.4%.
Markets also rose across much of Europe and Asia. South Korea’s Kospi was among the strongest performers, climbing 1.4%.
