Market Highlights: Investors fear 100bp Fed hike; and 5 ASX small caps to watch on Wednesday

The ASX is set to open much lower today after another selloff on Wall Street
The FOMC has convened for a meeting, with the interest rates decision due on Thursday morning AEST
Bitcoin is below US$19k

Local shares are set to open lower on Wednesday. At 8am AEST, the ASX 200 October futures contract is pointing down by 1%.

Overnight, Wall Street suffered more broad losses as the FOMC convened for the first of a two-day meeting.

Although a 75bp hike is already fully priced in, some observers are speculating about a possible 100bp hike. The FOMC decision is due out on Thursday at 4am AEST.

All three major stock indexes finished in the red – the S&P 500 by 1.13%, the Dow Jones by 1.01% and tech-heavy Nasdaq by 0.95%.

Traders are positioning themselves ahead of the Fed announcement, with the US dollar rallying further against other currencies on potential interest rates differentials, while the 10-year Treasury yield has spiked by 7bp.

Here is my scenario table for tomorrow's #FOMC rate decision. I think a 75bp hike is more likely than 100bp – agreeing with swaps – but the subsequent matters are contentious. What scenarios do you think is more likely? #Dollar $SPX pic.twitter.com/pYPVtksmO4

— John Kicklighter (@JohnKicklighter) September 20, 2022

Over in the UK, the BOE is also weighing its biggest rate hike in 33 years as investors expect a 75bp hit later this week to combat the 9.8% YoY inflation rate.

The Swedish central bank meanwhile, has stunned the markets last night with a 1 percentage point hike to 1.75%.

But according to deVere Group’s Nigel Green, investors should avoid panicking about the Fed’s next announcement and stick to basic investment fundamentals.

“Of course, investors should avoid complacency, but similarly, they should avoid panicking and responding to market reaction that is being driven by imperfect Fed policy tools,” Green said.

“Instead, whatever is announced by the Fed – which is guilty of grand scale inaction early on in tempering red-hot inflation – should be considered, but not given precedence over basic investment truisms.”

In company news, automotive stocks plunged as Ford fell 12% and suffered the biggest daily drop since 2011.

The automaker said it would take a $1 billion hit in Q3 from what it called “inflation-related Q3 supply costs”. Rival General Motors also fell 6%.

Most commodities slipped overnight, with iron ore price and oil prices falling by 1-2%.

Gold’s descent is gaining momentum as the spot price tumbled another 1% to US$1,664 an ounce.

“Commodities are broadly weaker as this week is all about the aggressive monetary policy tightening to combat inflation,” said OANDA analyst Edward Moya.

Bitcoin is also lower as risk aversion takes hold on potentially higher rates, trading at US$18,908 at 8.15am AEST,

“Bitcoin’s fate will be determined by this week’s central bank decision fireworks, which could help fuel any selloffs to retest the summer lows,” said Moya.

Meanwhile, the Nasdaq is poised to get involved with crypto. The exchange announced that it will launch a new Digital Assets unit that will offer crypto custody, and help expand other services.

5 ASX small caps to watch today

Catapult Group (ASX:CAT)
The sports tech company announced reductions to its cost base that it says will accelerate a return to positive free cash flow earlier than anticipated. The company will reduce its expenses in a number of areas, including both employee expenses and general overhead. Specifically, Catapult says it will reprioritise its investment to concentrate in its key product verticals which continues to be the core growth engine.

Castillo Copper (ASX:CCZ)
Regulatory approvals have been secured, enabling the drilling campaign at the Broken Hill Project’s East Zone to commence shortly. The drilling and logistics teams are now preparing to deploy to site, which comprises one diamond core and 17 RC drill-holes for 2,100m across four prospects.

Sabre Resources (ASX:SBR)
Sabre reported excellent nickel results and sulphides in the first 12 of 18 completed reverse circulation (RC) holes at the Nepean South Nickel Project near Coolgardie. Teh latest results have defined a broad nickel-enriched zone in saprolite above bedrock ultramafic nickel sulphide targets, including: 8m @ 1.01% Ni from 28m incl. 3m @ 1.26% Ni.

Lucapa Diamond (ASX:LOM)
Lucapa announced the recovery of a 131 carat white Type IIa diamond by Sociedade Mineira Do Lulo. The 131 carat stone is the 29th +100 carat diamond ever recovered, and the 4th +100 carat diamond recovered at Lulo in 2022.

Taruga Minerals (ASX:TAR)
A Rotary Air Blast (RAB) drilling program has been completed at the Morgans Creek clay-hosted REE Prospect (100% TAR owned). The drilling indicated several sub-parallel zones of interest within the target unit which contain a deep weathering profile and abundant clay minerals. Assays have been sent to the lab and the company awaits their return.