Skip to Content
scroll

First Up

**We are planning some system testing over the weekend and our usual Saturday Q&A note will not be sent. Any questions sent through will be answered on the website and a consolidated report will be sent out early next week. We are hopeful that a new Market Matters website experience, including charting, market data, broker forecasts & financials will be launched next week**

The ASX200 struggled again on Thursday as it failed to embrace the bounce by overseas bourses following the 0.75% interest rate hike by the Fed, or maybe it was simply smarter expecting the recent equities downtrend to continue over the coming weeks – it would appear so this morning! Overall the session was another lacklustre performance which may have seen the winners and losers evenly matched but when the banks struggle the local index tends to follow suit, Westpac (WBC) for example has now tumbled -20% in just 2-weeks.

Before many people hadn’t even gone to bed last night both the bonds and stocks resumed their aggressive sell-off dismissing the previous days solid bounce following the stabilising comments by Fed Chair Jerome Powell’s – he suggested super-sized rate hikes will not become the norm. After sleeping on it the  interpretations by Northern hemisphere traders took on a far more bearish skew as Europe recommenced trading:

  • This week saw the Fed raised rates by the most since 1994 with many now drawing parallels between Powell and Paul Volcker who broke inflation but at the cost of rising unemployment and a painful credit squeeze.
  • Investors have decided the Fed is prepared to accept a recession and rising unemployment to rein in soaring inflation – investors have lost confidence in central banks to manage the current tough balancing act.

The US is seeing growth and earnings fall while inflation remains strong, an awful back drop for stocks. The US Fed Funds target rate has now risen to 1.5-1.75% and it’s still expected to double again by the end of next year, the Bank of England hiked for the 5th time in a row last night taking their official rate to 1.25% however we did see their economy shrink by -0.3% for April after slipping -0.1% in March i.e. the hikes could already be biting.

  • In line with the UK economy last night we believe the local economy is slowing faster than inflation may suggest i.e. the price of petrol and a few lettuces doesn’t mean the Australian economy isn’t faltering under the hood.
  • MM believes the impact of the floods will be alleviated in 2-3 months, supply chains are slowly improving and we cannot rule out an improvement of the awful Ukraine – Russia situation.

MM might be sound like eternal optimists over recent weeks but we believe the markets baking in a lot of bad news on the inflation & the interest rate front and on balance we believe the risks now lie in favour of the doves i.e. in today’s environment a dovish view favours less rate rises. However as the markets telling us the risks of a recession are rising rapidly especially if central banks compound their late start to normalising rates by going too hard and too fast.

Overnight US stocks were hammered again more than wiping out Wednesday nights gains, the S&P500 fell over -3.2% reaching its lowest level since December 2020 with homebuilders sliding as mortgage rates jumped the most since 1987. The $US fell hard as European central banks joined the rate hiking party with the move helping gold advance over 2%, back above $US1850/oz. The falls on overseas markets has dragged the SPI Futures lower and they’re pointing to a 2% drop by the ASX early this morning.

MM is neutral to the ASX200 around the 6600 area
Add To Hit List
chart
image description
ASX 200
Back to top