US tech rally stalls as inflation heats up

The rally in US chipmakers and semiconductor firms came to an end as hotter-than-expected inflation firmed up expectations for the Federal Reserve to keep interest rates on hold, while oil prices continued to climb as the Middle East stalemate continued.

That’s set to give a soft lead for the NZX today, with Infratil already pulling back from record-highs as investors crystallised recent gains, while Ebos Group and Fisher & Paykel Healthcare will be in focus after US health stocks outperformed in the subdued environment.

The kiwi dollar held steady against most major trading partners ahead of the Reserve Bank’s quarterly survey of inflation expectations, while bond traders have pushed up their expectations for a hike later this month as the central bank gauges whether the energy shock is fuelling deeper inflation in the economy.

And prime minister Christopher Luxon will deliver a pre-budget speech in what The Post reported he would reiterate the growing risks facing the local economy, which Westpac NZ economists today said faced a slower recovery as the Middle East conflict drives up fuel prices.

The pullback

Wall Street’s tech-heavy Nasdaq Composite was down 1.2% in late trading with chip and semiconductor companies such as Intel and Micron Technologies giving back some of their recent gains as core US inflation rose 0.4% in April – faster than economists anticipated.

The S&P 500 dipped 0.4%, while the blue-chip Dow Jones Industrial Average nudged up 0.2%, with UnitedHealth Group, Walmart and Verizon Communications at the top of the leaderboard.

Tensions between the US and Iran remain elevated, with no peace deal in sight and the Polymarket prediction market pricing in a 17% chance of a permanent ceasefire being reached by the end of this month and a 36% chance by the end of June. Still, Wall Street’s fear gauge, the volatility index, was down 1.6% at 18.09. Brent crude oil futures rose 3.7% to US$108.02 a barrel at 7am in Auckland.

“After Wall Street pulled back from record highs overnight and global growth stocks came under pressure, the NZX50 looks set for a softer open this morning,” Moomoo strategy consultant Greg Boland said in a note. “Rising oil prices, hotter US inflation, and higher bond yields are likely to keep local investors cautious at the open.”

Local favourite Rocket Lab was among those to sidestep the downbeat mood, rising 1.4% to US$119.045 in late trading.

European markets were weaker, with the UK’s FTSE 100 marginally weaker, Germany’s DAX falling 1.6% and France’s CAC 40 sliding 1%. UK-listed Vodafone tumbled 7% after falling short of analysts’ expectations, while Germany’s Munich Reinsurance fell 6.2%, despite beating March quarter earnings forecasts.

Local inflation

The kiwi dollar traded at 59.56 US cents at 7am from 59.55 cents yesterday, while bond traders predict an almost even chance of the Reserve Bank lifting the 2.25% official cash rate later this month, pricing in a 12 basis point increase at the May 27 meeting.

The Reserve Bank releases its survey of expectations today, which will likely show managers expect prices to rise. New Zealand’s central bank has said it will move decisively if the energy shock feeds into a second round of higher prices after the initial spike in fuel prices.

Westpac NZ economists expect gross domestic product to grow a subdued 1.6% this year as more expensive energy saps household demand, with unemployment predicted to creep up to 5.6%.

Meanwhile, New Zealand prime minister Luxon is due to deliver a pre-budget speech to a business audience in Auckland today, with The Post reporting that he will point to growing geostrategic risks to support the coalition government’s fiscal programme and the need to keep debt in check.

Australian Treasurer Jim Chalmers delivered housing reform in the federal government budget last night, limiting negative gearing to new builds and lifting the nation’s capital gains tax in a bid to make buying property more affordable for younger people. The kiwi traded at 82.27 Australian cents from 82.36 cents yesterday.

Prices rose at the latest Global Dairy Trade auction, with the GDT price index up 1.5% for an average winning price of US$4,127 a tonne. Whole milk powder rose 2.2% to US$3,741/tonne.

And Radius Residential Care is due to report its annual result today, with Forsyth Barr analysts predicting a 26% increase in earnings before interest, tax, depreciation and amortisation, with an increased dividend.

Reporting by Paul McBeth. Image from Ilya Pavlov on Unsplash.