Market Highlights: ‘They could cut rates 15 times’… and 5 ASX small caps to watch

ASX to extend winning streak as the S&P 500 sets another record high
Fed Reserve to make rates decision on Thursday AEDT
And what will they do this year in terms of rate cuts?

Aussie shares are poised to extend their winning streak. At 8am AEDT, the ASX 200 index futures contract was pointing up by 0.3%, edging closer to a record high.

Overnight, the S&P 500 reset its all-time high once again after rising by +0.76%. The blue chips Dow Jones index was up +0.59%, while the tech-heavy Nasdaq surged by +1.12%.

This comes as Blackrock upgraded US stocks to overweight, with the fund manager saying it sees the current momentum to carry on for the next 6-12 months.

Investors now see the first Fed rate cut for 2024 in May instead of March, as FOMC members huddle for the first of a two-day meeting today (US time), with the decision on Thursday AEDT.

“Keep your expectations in check because we are not on the cusp of the Fed cutting rates,” said Greg McBride, Bankrate’s chief analyst.

“Even when they do, those cuts will likely be modest compared to the increases seen over the past couple of years.”

Bond yields have fallen ahead of the meeting, with the benchmark 10-year treasury yield sliding by 8 basis points.

To stocks, Tesla shares surged 4% on dip buying after the fall last week caused by the  downbeat production outlook for 2024.

Warner Bros Discovery fell -1.2% after Wells Fargo downgraded the stock from Overweight to Equal Weight, citing “risky earnings setup”.

The biggest mover last night was SoFi Technologies, a US online bank, which surged +20% on strong Q1 profit that beat estimates.

Meanwhile, five of the “Magnificent Seven” tech companies will report their earnings this week, with Microsoft and Alphabet first out of the blocks later today (US time).

Back home, Australia NAB Business Confidence report is due out today, while the much awaited Q4 Inflation report is due tomorrow.

What will the Fed Reserve do this year?

The Federal Reserve is widely expected to hold interest rates steady this week.

While the futures market points to the first rate cut in May, the market can never be 100% sure.

“This is the slow turning of the battleship of guidance where they slowly start to talk about rate cuts,” said Luke Tilley, chief economist for Wilmington Trust.

Whether or not they will cut in March, the market is already predicting six rate cuts in 2024 – or 1.5% cut in total if each cut is 25 basis points.

Some experts are however sceptical.

“That’s a pipe dream.  If we have a soft landing, that’s not happening — we’ll get two or three,” Harvard Professor Ken Rogoff told Bloomberg.

“If we get a deep recession, and definitely it could happen — how’s it going to happen, I don’t know, but 25% chance it happens — well they will cut rates a lot. Not six times, they could cut rates 15 times,” he added.

In other markets …

Gold price rose by +0.65% to US$2,031.59 an ounce.

Oil prices fell by -1.2%, with Brent now trading at US$81.95 a barrel.

This comes as President Joe Biden seeks a response to the deadly attack on US forces in Jordan yesterday.

The benchmark 10-year US Treasury yield fell 8 basis points (bond prices higher) to 4.08%.

Iron ore futures lifted another +1.3% to US$135.60 a tonne.

The Aussie dollar surged by +0.5% to US66.11c.

Meanwhile, Bitcoin was up +3% in the last 24 hours to US$43,152.

5 ASX small caps to watch today

Adacel Technologies (ASX:ADA)
Adacel announced a new contract with NAV Portugal valued at approximately USD$1.2 million over two years. This contract encompasses upgrades to NAV Portugal’s Aurora air traffic management system to prevent runway incursions in Azorean airports. The contract also coincides with the 20th anniversary of NAV Portugal and Adacel’s relationship.

PharmAust (ASX:PAA)
PharmAust has received approval for an Open-Label Extension study of monepantel, in patients with Motor Neurone Disease (MND)/Amyotrophic Lateral Sclerosis (ALS). All Phase 1 MEND Study patients have expressed interest in continuing treatment and participating in the study. The study is expected to commence in February.

Jervois Global (ASX:JRV)
Jervois has received results from surface drilling campaign at Sunshine deposit, a programme fully refundable by the US Department of Defence (DoD). Results from seven-hole program (ca. 1,100 metres) include: 2.9m calculated true width @ 0.01% cobalt (Co), 0.27% copper (Cu), 0.03 grams per metric tonne gold (Au). Jervois is continuing underground development to support extensional drilling of the RAM deposit, activities which are also fully refundable by the DoD.

Loyal Lithium (ASX:LLI)
Drilling has recommenced at the Trieste Lithium Project in Canada, with an initial focus on Dyke #04 and Dyke #05 – two of the six discovered spodumene bearing pegmatite dykes. The drilling program seeks to gain valuable insights into the geological context by covering up to 2,500m, prior to planning additional drilling initiatives.

Plenti Group (ASX:PLT)
Loan portfolio for the quarter to December 2023 increased to $2.07 billion, 24% above pcp and 4% above prior quarter. Annualised net credit loss was 123 basis points, broadly consistent with recent quarters. Overall, PLT reported quarterly revenue of $54.4 million, 46% above pcp, driven by loan portfolio growth and the higher interest rate environment.

At Stockhead we tell it like it is. While PharmAust is a Stockhead advertiser, it did not sponsor this article.

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