Market Highlights: Wall Street spooked after Powell warns not to get too excited; and 5 small caps to watch

ASX set for shaky start after Powell downplays future rate cuts
Wall Street fluctuates post-Fed cut, S&P 500 and Nasdaq end lower
Powell emphasises cautious approach, no rush for policy changes ahead

The ASX could be on shaky grounds this morning after US Fed Reserve Chair Jerome Powell clarified that the 50 basis point cut the central bank made shouldn’t be seen as the start of a big rate-cutting spree.

At 8am AEST, the SPI ASX200 futures contract was pointing down by 0.5%.

Overnight, Wall Street was a bit all over the place following the Fed’s announcement of a 50 basis points (0.50%) cut.

The market initially rallied before reversing direction. Just half an hour before the close, stocks were up, but they ended up falling as the session wrapped up.

The S&P 500 finished the day lower by 0.3%, the Dow Jones was down by 0.25%, and the tech heavy Nasdaq slipped by 0.3%.

It was a positive, aggressive start to a policy shift by the Fed, but what got traders nervous was Powell’s remarks at the press conference.

“I do not think that anyone should look at this and say, ‘Oh, this is the new pace,’” Powell said.

There was also some concern around the projections, or what’s called the ‘dot plot’, released following the two-day meeting.

The dot plot showed that only a slim majority—10 out of 19 officials—backed cutting rates by at least another 0.50% in their two upcoming 2024 meetings.

Seven were in favour of a smaller 0.25% cut this year, while two didn’t want any changes.

Despite all that, Chris Larkin from E*Trade said the markets got what they were hoping for—a jumbo first rate cut from the Fed.

“The Fed has a well-deserved reputation for not rushing, so there’s the potential for some disappointment if it’s seen to be moving too slowly, especially if economic data continues to soften.

“But today they delivered,” Larkin said.

To stocks, Microsoft fell 1% despite announcing that it was teaming up with BlackRock to launch an AI infrastructure fund worth as much as US$100 billion.

The focus of the fund will be on investing in data centres and developing new power sources for them, primarily in the United States, with some investments also going into U.S. partner countries.

Alphabet rose 0.3% after scoring a legal win as the EU’s General Court overturned a hefty fine of nearly 1.5 billion euros that was slapped in 2019 for allegedly abusing its dominant market position.

The court found that the European Commission had “committed errors in its assessment”. This ruling comes just days after Google lost an appeal against a US$2.7 billion antitrust fine in the US related to its shopping services.

Meanwhile, Qualcomm Inc has lost an appeal in Europe regarding a 242 million euro fine. The case is tied to accusations that the US company had set chip prices so low that it pushed out a smaller competitor.

What did Powell actually say to spook the markets?

First, Fed Chair Jerome Powell does not believe the risk of an economic downturn is “elevated”.

He said, “I don’t see anything in the economy right now that suggests that the likelihood of a recession, sorry, of a downturn, is elevated. I don’t see that.”

“The U.S. economy is in good shape. It is growing at a solid pace. Inflation is coming down.”

He also does not anticipate a return to the era of cheap money. He believes the neutral rate is likely much higher than it was previously, though he does not yet know how high.

Powell also said the Fed’s main goal is to restore price stability while keeping unemployment rate in check.

He added that this 50 basis-point rate cut demonstrates the Fed’s “strong commitment” to this objective.

Despite one dissenting vote regarding the 50 basis-point cut, Powell indicated that there was substantial agreement within the Federal Reserve.

“There was a lot of discussion back and forth, there was also broad support for the decision that the committee voted on.

“There is a dissent, and there’s a range of views, but there’s actually a lot of common ground as well,” he said.

But this one was the bomb for markets. Powell said the central bank is not rushing to adjust its policies.

“There’s nothing in the SEP (Summary of Economic Projections) that suggests the committee is in a rush to get this done,” he stated.

“ I do not think that anyone should look at this and say, ‘Oh, this is the new pace.’ I think we’re going to go carefully meeting by meeting, and make our decisions as we go,” he said.

The next two Fed meetings before year end are scheduled for November 6-7 and December 17-18.

To other markets …

Gold price fell a further 0.6% to US$2,558.90 an ounce.

Oil prices fell by around 1% , with Brent crude now trading at US$73.02 a barrel.

The benchmark 10-year US Treasury yield was 5 basis points higher (bond prices lower) to 3.70%.

The Aussie dollar climbed modestly by 0.10% to US67.68 cents.

Bitcoin meanwhile was up 0.5% in the last 24 hours to US$60,463, and Ethereum fell by 0.15% to US$2,339.

Meanwhile, iron ore slumped by 1.5% to $US90.80 a tonne, reversing yesterday’s gains.

5 ASX small caps to watch today

Knosys (ASX:KNO)
Singaporean giant, Singtel , has signed a two-year contract extension to continue using Knosys’ KnowledgeIQ platform, valued at $750,000. Also, Singtel plans to upgrade to the latest version of KnowledgeIQ within the next year to access new features. CEO John Thompson said he looks forward to announcing further multi year extensions during the year as the company executes a revenue backlog out until 2027.

Tennant Minerals (ASX:TMS)
Recent drilling at the Bluebird discovery in Tennant Minerals’ Barkly Project has uncovered new high-grade copper and gold zones, indicating strong potential for expanding resources in multiple directions. Key findings include thick intersections of gold and copper, with highlights such as a 5-meter section grading 8.3 g/t gold and 2.0% copper. Also, a new, well-mineralised zone at Bluebird East shows promising thickness and depth, including 28 meters at 2.1% copper equivalent. Up to four large, high-grade copper-gold lenses have been identified, each potentially 300 meters long and 200 meters deep, with further results pending from ongoing drilling along a 2.5-kilometer trend.

Opthea (ASX:OPT)
Opthea has successfully completed a key manufacturing milestone for its drug sozinibercept, used to treat wet age-related macular degeneration. The company produced three consecutive commercial-scale batches, validating its manufacturing process. This progress is crucial for filing a biologics license application (BLA) for sozinibercept. Opthea is also advancing two Phase 3 trials for the drug and plans to provide an update on the next phase of drug product development in early 2025.

GreenTech Metals (ASX:GRE)
Recent drilling at the Whundo Copper Project has revealed strong potential for resource expansion, with high-grade copper results reaching up to 4.6% Cu. A 1,710-meter drilling program confirmed continuity of copper and zinc mineralisation at two sites, Austin and Ayshia, with significant intersections of 16 meters at 1.2% Cu and previous high-grade results of up to 5.4% Cu. GreenTech says it plans to advance its drilling efforts to target these high-grade areas and expand the current copper-zinc resource, which stands at 6.2 million tons.

Sims (ASX:SIM)
Sims announced that its Metal businesses are expected to perform well in the first quarter of FY25, projecting an estimated EBIT of around $55 million. North America Metal is anticipated to contribute $29 million, showing a strong recovery from previous losses. SA Recycling is also doing well, with Sims’ share expected to yield $24 million in EBIT. Meanwhile, Australia and New Zealand Metal faces market challenges but still aims for a solid $13 million in EBIT, marking a good start to the year.

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