The ASX200 managed to bounce yesterday even after a negative lead from Wall Street and ongoing weakness from the local Banking Sector with CBA already 11.5% below last weeks high, another 5% and it will become interesting to MM. There were no particular standouts on the sector front and only 3 stocks moved by over 5%, the market still remains comfortable in its 7300 – 7480 trading range and while our preference is a breakout to the upside it has been a touch frustrating how the ASX has ignored positive moves on global bourses.
Any doubts I had towards rising inflation vanished yesterday when Scott Morrisons government said they have no intention of rapidly increasing migration, he obviously hasn’t got numerous job vacancies he cannot fill. The RBA is focused on getting wages growth up to 3% but most people I speak to are witnessing increases in the 10-20% region and this is across numerous industries from IT to retail and hospitality. A couple of quick thoughts popped into my head as I contemplate interest rates through 2022:
- High valuation growth stocks will need to perform on the corporate level to justify current lofty valuations.
- The inevitable property crash being predicted by many economist may not actually materialise if wage increases can match the future lift in mortgage rates plus the demand side of the equation will be supported when migration does eventually pick up momentum.
The last few years have been fascinating chapters for equities from a pandemic crash to one of the greatest market rallies in history, at this stage I wouldn’t be surprised to see 2022/23 deliver equally interesting chapters although picking what comes next after the current surge by inflation is not clear at this stage but we should remain mindful that markets look 6-12 months in advance hence what’s in the papers today is unlikely to be of great help generating strong returns in the year ahead. However a couple of news articles around COVID did catch my attention overnight:
- Austria, Germany and Belgium look set to experience a tough Christmas as new cases surge due to low vaccination rates – Germany witnessed a weekly 40% increase in cases to 68,000 on Thursday with lockdowns for the unvaccinated appearing inevitable.
- However extremely knowledgeable Bill Gates believes COVID deaths may actually drop to flu like levels by mid-2022.
Overnight US stocks were mixed with big tech dragging the broad based S&P500 back towards new all-time highs, the SPI futures are pointing to a mildly stronger open.
MM remains bullish the ASX targeting fresh highs into Christmas
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