Mastercard: Will Fed’s Rate Hike Be Its Tailwind?

Written by Larince Zhang

Last week, the Federal Reserve (Fed) increased its benchmark rate by 50 bp to 0.75%-1.00%,  the largest single hike since May 2000 in an attempt to tackle a 40-year high in US inflation. In addition to reducing asset holdings, Fed Chair Powell signaled a couple of rate hikes by 50 bp in the coming meetings. He also reiterated that the central bank will go down to rate hikes of 25 bp “if inflation comes down”.

Fig.1: US Non Farm Payrolls and Unemployment Rate. Source: Trading Economics

On the other hand, the Non-Farm Payrolls in April 2022 recorded an increase of 428K in employment, marking job gains above 400K for twelve consecutive months. The unemployment rate stayed flat at the previous level of 3.6%, slightly higher than consensus estimates at 3.5%. Labor force participation marked its lowest level since January, at 62.2%. In addition, average hourly wage hits new low since March 2021, at 0.3% – this may be an indication of inflation slowing down. Regardless of the results, the CME watch tool shows that the Fed’s decision for tightening monetary policy remains unchanged.

Tightening of monetary policy may not be friendly to the stock market. In this circumstance, its fairly essential to locate stocks that could possibly withstand a rising-rate environment. Mastercard Inc. may be one of the candidates. Being one of the conglomerates in the global payment space, Mastercard facilitates payment transactions in more than 200 countries with more than $7 trillion flow through its network and over 2.5 billion cards in circulation. Following the central bank’s rate hike, Mastercard will collect higher fees for each transaction by serving as a middleman between sellers and consumers.

However, it is also worth noting that the economic conditions plays a great role in determining the outlook for the company. If economies fall into recession, reduced demand and spending may inevitably hurt the business of all global payment companies. On a positive note, collaboration with Microsoft and Zeta offers a more competitive edge for Mastercard in aspects such as safety, security, convenience of e-commerce, online banking and contactless transactions.

Technical Overview:

The daily chart shows #Mastercard trading within an ascending wedge, currently testing the lower line at $341.30, or FR 38.2% extended from the highest point ($399.90) in February’22 to the lowest point ($305.15) in March’22. Breaking below the level would indicate bearish possibilities for the company’s share price to test the next support zone $324.00 – $327.50, and $300.15 – $305.15. On the other hand, $352.50 (FR 50.0%) serves as the nearest resistance to watch. A strong candlestick close above the said level as well as the 100-day SMA may suggest more buying pressures towards the next resistance at $363.70  (FR 61.8%) $379.60 (FR 78.6%) and the highest point seen this year at $399.90.

About the author

Larince Zhang

长达八年的实盘操作与市场分析经验。涉足的金融产品包含外汇、大宗商品、股指、商品期货、指数期货以及股票。大学主修金融学,秉持着学以致用的心态务必把课堂上所学的知识与临场实践经验相结合。 经过多年交易经验的积累与总结,坚信“大道至简”四字箴言。价格的变动即是幕后人为交易买卖所驱使。坚信市场考验的不是技术,而是人心。唯有正确的交易认知、缜密的策略布局与严谨的资金管理,方才是成熟交易的真谛。

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