When inflation rises it takes interest rates along for the ride which flows down to multiple contraction / a drop in valuations i.e. people are prepared to pay less for a company’s potential growth / yield because they can suddenly get an improving return on their risk free funds at the bank i.e. a major tailwind for stocks has become a headwind
The US literally pumped money / stimulus into their economy after the GFC but the amount pales into insignificance compared to their extreme efforts post-COVID, never in history has the global economy experienced such phenomenal economic stimulus effectively providing “free money” which has fuelled massive M&A and buyback activity in equities
MM believes that company buybacks are close to a point of inflection which should remove an enormous tailwind for stock indices i.e. one of the largest net buyers of stocks may retreat
MM remains mildly bullish Australian equities looking for 4-6% further upside i.e. not a big call but we do anticipate reducing our risk if such a move unfolds
MM is looking for around 10% upside in copper in the coming months but we must remain mindful of how quickly some moves unfolded in 2020/21, in both directions!
The ASX 200 bounced back strongly today, recovering almost all of yesterday’s losses as reports of a tentative 60-day ceasefire extension between the US and Iran sparked a broad risk-on rally. Falling oil prices, easing inflation concerns and lower bond yields fuelled buying across the market, with Materials, Technology and Real Estate leading gains while Energy lagged as crude slipped to five-week lows.
The ASX200 was clobbered 1.4% on Thursday as the US struck Iranian military targets for the second time this week and Kuwait said it responded to missile and drone threats, highlighting the fragility of the “so-called” ceasefire. Crude oil popped ~3% on the news, sending Asian indices and US futures sharply lower, with no clear end in sight to the geopolitical uncertainty. Global equities, not so much the ASX, may want to rally, but with roughly 20% of global oil and LNG supply effectively constrained by disruptions through the Strait of Hormuz, the market will need to see the waterway reopen soon, or the confidence currently underpinning risk assets may begin to fade quickly.
A tough session for the ASX today following fresh escalation in the Middle East. The local market turned sharply lower after Iran claimed it had targeted a US military base following American airstrikes near Bandar Abbas, reigniting fears around oil supply disruptions with U.S President Donald Trump objecting to Iran’s claim to the Strait of Hormuz and asserting no one nation should control the vital waterway – a key sticking point in resolving the crisis.
The ASX 200 roared back to life on Wednesday, reversing early weakness to close up 0.7%, with aggressive late-session buying sweeping through the market and reigniting risk appetite. Over 70% of the main board closed higher, but it was the rate-sensitive stocks that started to move after the April inflation numbers came in slightly better than expected - Consumer Discretionary (+1.8%), Tech (+1.8%), Utilities (+1.7%), and Real Estate (+1.6%) were the top four sectors on the day.
The ASX traded in two very different halves today, opening weaker as Financials extended yesterday’s selling pressure before a softer-than-expected CPI print sparked a broad rebound across the market. Once the inflation data hit, rate-sensitive sectors quickly caught a bid as traders pared back expectations of another near-term RBA hike, helping the index finish strongly into the close.
The ASX gave back Monday’s gains on Tuesday, slipping -0.4% to leave the market effectively flat for the week — a frustratingly familiar pattern that has played out repeatedly throughout May. The weakness was caused by a ~2% gain in crude oil after US and Iranian forces clashed near the Strait of Hormuz, highlighting the tension between the two sides even as they “claim” progress toward an interim peace deal; a similar tale to the last ~90 days.
The ASX dropped to open the session but clawed back some of the losses through the day with the local market digesting fresh US strikes on Iranian targets this morning. While the escalation initially rattled sentiment, investors seemed reluctant to panic, with oil prices remaining relatively subdued despite the developments.
The ASX 200 enjoyed a far better day than the Futures market was suggesting on Saturday morning, as hopes for a deal to end the US-Iran conflict improved investor confidence and pushed oil prices down by more than 4% during our trading session. Global markets from Tokyo to China and Australia embraced news that officials signalled the US was nearing a deal with Iran to reopen the Strait of Hormuz and restore oil flows - we’ve heard it before.
The ASX finished modestly higher to start the week as oil prices fell more than 5% on growing optimism that a US-Iran deal to reopen the Strait of Hormuz could be imminent.
Over the weekend, President Donald Trump said a peace agreement with Iran had been “largely negotiated” and indicated a deal to reopen the Strait of Hormuz could be announced shortly. Iran also signalled negotiations were progressing, while US Secretary of State Marco Rubio said there may be “some good news” on the key shipping route in the coming hours, raising hopes the conflict may finally be moving toward de-escalation.
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