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A weaker session thanks to a few large index weights disappointing, particularly amongst the resources, however worth noting some strength came through from the intra-day lows as Chinese equities bounced. It may sound like we’re clutching at straws, but there is growing evidence that China will get a handle on its economic woes, and we often see stock prices pre-empt such turning points.
Yesterday, the Peoples Bank of China (PBOC) announced lenders had cut their 5-year loan prime rate (LPR) by 25 basis points to 3.95%; it was the first cut since June, reaffirming Xi Jinping’s intentions to reinvigorate their economy, which the prolonged property crisis has weighed down. This was the biggest-ever cut to the key mortgage reference rate as Chinese banks cut rates to incentivise borrowing; the targeted stimulus will increase the potential pool of buyers as apartment prices continue to slip lower.
Plenty of action under the hood again today with some big moves on either side of the ledger. BHP the big one to report results (inline) while Star (SGR) is in the regulator’s cross hairs again.
Whichever type of coal we look at, the pictures the same, one of panic buying through 2021 and 2022 followed by aggressive selling through 2023, creating huge volatility across the respective coal stocks. As with most commodities, China is by far the world’s largest consumer of coal, and if/when Beijing lifts its struggling economy, the dial will likely edge higher on the demand side of the equation. Conversely, on the supply side of the ledger, new mines are becoming increasingly more challenging/ almost impossible to permit or fund on the global push towards decarbonisation.
The index was little changed today but a lot happening under the hood, more misses than hits today, especially in our universe as reporting season kicks up a notch this week.
China’s stock market went into its “Year of the Dragon” celebrations with a rare and much-needed bounce, with the index, ahead of last week’s break, up +8.3% from its 5-year low. However, it would be easy for the bears to justify the gains on simple book-squaring ahead of the long break. Still, at MM, we can see something more meaningful brewing beneath the surface, i.e. Chinese stocks are looking for a low after almost halving over the last two years. While there are no concrete fundamental or technical buy signals in place, we continue to believe a ~20% bounce, at the very least, is close at hand.
The ASX200 ended a volatile week up just +14-points, or 0.2%, after impressively shrugging off some aggressive selling mid-week following strong US inflation data cast a shadow over when & how quickly the Fed will start cutting interest rates. Whether it is Australia, Japan or the US, the markets are still embracing signs of weak economic growth, with markets focused on when the cuts will be forthcoming.
A choppy week on multiple levels with the macro-economic backdrop throwing up some surprises while local and US reporting season ensured a lot of earnings-driven variance across the market. While the week ultimately ended flat at the index level, nearly 20% of the ASX 200 finished higher or lower by more than 5%, although twice as many stocks were up by that quantum than down, driven by what’s generally been a very good results period so far.
The US Real Estate Sector led equities higher overnight as pressure reduced on bond yields; the sector finished up +2.5% while the IT Sector actually closed lower. With investors struggling to justify the lofty valuations of many well-known stocks, the real estate names offer a degree of solace as they remain ~25% below their 2021 high, and interest rates looked to have peaked with the main question of when and how fast will the Fed cut as opposed to if they will cut.
The market bounced back nicely today, recouping yesterday’s losses underpinned by good company results – good only fashioned earnings are driving prices, while an eye-watering bid for Altium (ALU) also added some spice to the mix. Lots of companies we own out with numbers today, mostly good, but a couple below par.
