Equity Indices

The ASX200 is already up +2% in May and looks set to add to those gains this morning. This month’s advance has been fuelled by market-friendly economic data, pushing rate-sensitive stocks higher as interest rate cuts stormed back on the menu for 2024. However, this week looks set to be dominated by the Resources Sector after copper and precious metals surged higher at the end of last week – on Friday, the copper ETF (COPX US) surged +4.7% while the gold ETF (GDX US) advanced +3.4%.

• The SPI Futures are pointing to a +0.45% gain this morning, aided by a $1, or +2.3%, gain by BHP in the US on Friday.

US equities pushed to new all-time highs last week, following MM’s roadmap perfectly. However, although we believe they will continue to move higher, the risk/reward is diminishing as the 6-months advance starts to mature. Equities are now pricing in 2-3 rate cuts into 1Q of 2025, which, in our opinion, may be correct, but it’s likely as good as it gets; hence, stocks may struggle for fuel to push significantly higher – we expect increasing volatility over the coming months, especially on the sector level.

• Over the coming weeks/months, we are initially targeting the 3150 area for the broad-based Russell 3000 index, or around 4% higher.

The most crowded trade recognised by fund managers is the “Long Magnificent 7,” a stance taken by 52% of the respondents, although it has declined from its peak of 61% in February. Short Chinese equities come second, followed by long Japanese equities. We agree with the consensus view towards Japan, at least in the short term, but we believe “the crowd” will regret their stance towards China. Japanese stocks continue to benefit from zero interest rates and a depreciating currency, which aids exports.

• We continue to target a fresh 2024 high for the Nikkei, around 8% higher, a positive read-through for global equities over the coming months.