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

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.

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Larince Zhang 

Market Analyst

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