Archives: Reports
An escalation of aggression in the Middle East over the weekend was the main cause for concern today, weighing on the local market from the get-go. The weakness didn’t cause any contagion though, equities seemed pretty well supported after hitting a low just before midday, i.e. panic didn’t set in and traders are still using dips to edge into the ASX. Energy was the main winner today, that was despite Oil markets giving back some of the gains seen on Friday night. Materials were also surprisingly well-supported thanks to US imposing further sanctions on Russian commodities, a trade we are well-positioned for.
Iran and a number of its allies launched a large-scale drone and missile attack upon Israel on Saturday night in retaliation for a suspected Israeli strike on an Iranian diplomatic complex in Syria. The prospects of a full-blown conflict in the region have increased dramatically over the last week, with at least nine countries involved in Saturday’s conflict, projectiles fired from Iran, Iraq, Syria and Yemen were downed by Israel, the US and France, as well as Jordan. Following Iran’s attack, the U.S. pledged “ironclad” backing for Israel, but President Joe Biden made it clear the US would not participate in any offensive operations against Iran.
The ASX200 edged higher last week even though eight of the eleven main sectors closed lower. The influential Resources Sector’s strong performance allowed the local market to eke out a +0.2% gain, while the rate-sensitive Real Estate Sector led the declines, ending the week down -2.7%. Investors had to weigh up some very conflicting news flow on the US inflation front, with a strong CPI on Wednesday night denting hopes of three rate cuts before Christmas before a tame PPI soothed inflation concerns, which was helped by ongoing dovish commentary from a number of Fed officials, both past and present.
A choppy, range bound session on the ASX today with little conviction in either direction as we head into the weekend, and the start of School Holidays in NSW which leads to weaker volumes across the market.
We are adding a new position to the Active Income Portfolio
As subscribers may have read, NEXTDC (NXT) is tapping the market for $1.3bn; some investors might be tempted to fund the raise by the data centre operator with other ASX tech names, hence today’s report. Last night’s +1.65% surge by the NASDAQ-100 illustrated there’s still plenty of life left in the sector, especially if we do see the Fed and ECB start cutting rates this year. For all of the talk around excessive valuations and sticky inflation, the US tech sector is still less than 1% below its all-time high.
Stocks were hit early on the back of the hotter inflation print in the US overnight, the ASX down ~100pts at its worst, before a spirited/impressive recovery played out, underpinned by the resources & energy sectors while the Staples also played their part. This sort of market action is indicative of a strong market, where negative news gets a short sharp reaction, but ultimately the weight of money remains on the buy side.
The weakness across the Lithium Sector has lost its place in the financial press due to the strong rallies in copper and gold. Usually, more “clicks” are achieved from bad news and crash-style stories, but the lithium bear market has grown old in the tooth. However, as we’ve seen with other commodities and related stocks, this year is starting to look exciting for the commodity space, and we believe lithium can join the party, at least for a while. We aren’t as bullish towards lithium as copper, for example, with the supply & demand dynamics far from clear, but we can see them enjoying a strong finish to this FY.
A reasonable session for the ASX today, underpinned again by a recovery amongst the miners, Coal stocks the standout following multiple broker upgrades. In the past month, the materials sector is +2.4% vs IT which is down -3.98% showing how sectors are coming in and out of favour, a market for active investing. Eyes will be on the US CPI tonight with the latest set of numbers expected to fall to 0.3% from 0.4%.
Overnight, the influential former Federal Bank of St. Louis President James Bullard said he’s expecting three rate cuts in 2024 as inflation moves towards the Feds target even while the economy remains resilient, i.e. the “Goldilocks” scenario for stocks. Bullard’s outlook echoed the Fed’s messaging as opposed to the increasing market expectations that two cuts have become more likely than three, e.g. Treasury yields made new highs for the year on Monday night. Mr Bullard is indirectly quoting the old adage of “don’t fight the Fed”. However, it wasn’t the ongoing commentary from the central banker that caught our attention but rather the market’s reaction following the relatively Dovish interview—gold surged over $US30 to another all-time high while bond yields hardly moved. This has been the story of 2024, which has seen gold surge around $US300/oz while bonds have drifted lower (yields higher).
