The ASX200 opened strongly on Tuesday as anticipated but it was pleasant change compared to the rest of June that we managed to hold onto these gains although a surging S&P500 Futures market certainly helped the sentiment. The main Australian bourse ended the day up +1.4% with over 70% of the main board closing in positive territory. The Financials & Resources Sectors combined to lead the gains with many energy stocks reversing much of Mondays weakness, although a number of the miners struggled to maintain their gains through the afternoon implying they could experience further downside into July e.g. yesterday saw iron ore experience another roller-coaster session in China trading range in a 6.5% trading range before closing -2.4% sending BHP down over 1% from its intra-day high.
- Stock / sector rotation along with some clear de-risking remains the main game in town but even when it feels uncomfortable successful investors follow their plan when a stock they like gets hammered into an identified buy area.
The RBAs delivered a plethora of communique this week which overall followed our more dovish stance i.e. interest rates are going up but MM continues to feel the markets getting ahead of Phillip Lowe et al:
- The RBA will consider a 0.25% or 0.5% hike at its July meeting not the 0.75% that many feared – we believe they will again go 0.5%, taking the cash rate to 1.35%, its highest level since 2019.
- The governor hosed down rates hitting 4% by Christmas including his comments on the 730 Report, our call is ~2.5% by Christmas i.e. a 0.5% hike in July and then 0.25% every month ending on Melbourne Cup Day.
- Also remember MM believes the RBA will be cutting in 12-18 months’ time as they try and balance economic growth with interest rate normalisation.
Overnight US stocks returned with a bang after their much needed long weekend following last weeks $US2 trillion rout, the tech sector enjoyed a +2.5% bounce even as bond yields edged higher. Interestingly a basket of the most shorted stocks rallied +2.7% mildly outperforming the broad market as some traders look to vote that we’ve seen enough downside, at least for now. The SPI Futures are calling the ASX200 to open up another +0.7% this morning as it slowly edges back towards the 6600 area.
- Joe Biden helped sentiment saying that a recession wasn’t “inevitable” but unfortunately that doesn’t mean it’s not very likely.
- Central banks walk the inflation / recession trade off while stocks attempt to price in a fair chance of economic contraction – often more sentiment than science.
MM is neutral the ASX200 around 6550
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