Indices: Australian ASX 200
The ASX200 rallied strongly in the shortened week as the path of least resistance remains on the upside with investors continuing to be positioned too conservatively. Analysts are forecasting an ugly earnings season with deteriorating profits and weakening guidance with no major turnaround expected this year however with the bears so prominent the potential for upside surprises increases as we saw on Friday with the banks.
The ASX200 ended down -0.3% yesterday with the strong employment print exerting a mildly negative influence across the market but with winners still beating losers on the day it was nothing overly concerning in our opinion i.e. the index was dragged slightly lower by falls in the market heavyweights CBA, BHP, and CSL. Considering the market’s ability to absorb “bad news” and the defensive positioning of both retail investors and fund managers we continue to see the path of least resistance/most pain being on the upside.
US stocks experienced a choppy session overnight after the market-friendly CPI print initially sent stocks higher only for the release of the minutes of the Federal Reserves March policy meeting showed policymakers agreed that the stress in the banking sector would slow US economic growth. History had told us that the US CPI has been causing major market swings over the last year e.g. over the last 12 months the S&P500 has closed up or down an average of 1.9% on CPI day, more than twice what it has over the previous year. However last night the -0.4% retreat might signal economic surprises and a volatile bond market is behind us.
As we often state the ASX moves far more in tandem with the likes of the UK FTSE as opposed to US indices – it’s not rocket science, similar to the Australian market European indices have a larger market weighting of resource stocks as opposed to tech which now dominates most US indices. On the relative performance front, Europe is winning hands down even as war rages in Ukraine e.g. The UK FTSE is less than 2% below its pre-COVID high just above 7900 compared to the US which is -14.5% below its equivalent milestone.
The ASX200 rallied strongly into Easter but our preferred scenario is we will now see a period of consolidation after the 300-point rally over recent weeks however as May looms we are likely to migrate down the “risk curve” to afford us some flexibility if we see yet another period of seasonal weakness.
