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The ASX200 slipped back into its recent bad habits yesterday with investors prepared to chase a few bargains into weakness but unfortunately, there remains a clear absence of buyers into any meaningful degree of strength – it appears we need some improvement on the macro level before some real confidence returns to stocks but this can often occur when least expected. However, through Wednesday’s session, it was a sharp decline by the S&P500 futures that changed the initial positive sentiment for the local market as recession fears intensified dragging down influential commodities like crude oil and copper, both were down well over 3% by 9 pm last night. The ASX feels like it’s trying to find a base but it’s clearly not strong enough to dismiss this bearish intra-day backdrop!

Crude oil may have corrected over 15% in the last 3-weeks but as inflation fears persist Joe Biden looks to be following Scott Morrisons’ lead by calling a tax holiday on gasoline, he may also become another incumbent whose popularity isn’t strong enough to withstand an economic downturn but fortunately, there’s over 2-years until that particular circus returns to town. The oil price has started to dance to the recession fear tune of late and if MM is correct we could easily see another 10% downside for oil which doesn’t bode well for stocks/sectors which are poorly correlated to economic contraction.

  • Only a week ago in the Bank of America s latest Fund Managers Survey over 65% of investors thought crude would be the big winner in 2022 – crowded positions are having a volatile time at present.
  • It’s ironic that investors are scared of a recession yet the most pain for the average portfolio will come from lower oil prices, exactly what usually unfolds during periods of economic weakness.
  • MM is keen on the Australian Resources Sector into further weakness but we can see a further ~10% downside by some of the major miners as recession fears weigh on financial markets.

Elsewhere the IT stocks keep attempting to bounce before succumbing to the continual selling pressure, it almost feels like “get me out” stuff with every member of the ASX200 Tech Sector falling over the last 6 months but in today’s value contraction environment it’s hard to get excited about anything more than a strong bounce. MM has been looking for such a move over recent weeks and it clearly hasn’t eventuated, considering the sector’s performance and the potential for further tax-loss selling our call may prove to be premature.

US stocks rallied strongly into positive territory in the wee hours of the morning but further remarks from Jerome Powell reiterating the Fed’s commitment to curb inflation and the subsequent risk of a recession led to some profit-taking and they closed basically unchanged – a bit like the ASX there’s now some bargain hunting around but no buyers of strength. Bond yields and the $US slipped lower but it wasn’t enough to help commodities that were focused on the recession prospects e.g. oil closed down almost -4% dragging the Energy Sector down by a similar amount. The SPI futures are set to open up +0.4% after going home with the US looking set for a tough night.

MM is neutral to the ASX200 around the 6400 area
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