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The US energy sector advanced +1.3% on Thursday night, suggesting local names will enjoy a solid end to the week. Crude has struggled through 2024 on global growth concerns, and while China has been front and centre of the market pessimism, the US and Europe haven’t helped. However, recent monetary policy easing by the Fed and ECB has illustrated that Western central banks are focused on engineering a soft economic landing. Brent crude has potentially already experienced the “washout” under $US70, which MM has been anticipating, and a move back towards $US80 would catch many traders on the wrong foot.
A volatile open this morning with the SPI Futures squeezing into the September index expiry – up ~70pts into blue sky territory, before pulling all the way back to par by lunch time. US Futures found some form and the ASX followed suit, rallying throughout the afternoon session to ultimately end up 50pts, chalking up a new all-time high for the ASX at 8200, driven by a big turnaround in the resources sector; the interpretation for now at least being that lower rates will be supportive of global growth and therefore demand for raw materials – though that could simply be back-filling a reason!
This morning, AEST, the Fed cut interest rates by an outsized 0.5%, leading to an initial 375-point surge by the Dow, which subsequently reversed, leaving the old index down over 100 points. Traders initially embraced the large rate cut, though it did raise concerns that the Fed was trying to get ahead of potential economic weakness. We should remember that credit markets were already pricing a 65% chance of such an aggressive move. Comments from the Fed focused on inflation first and foremost, but they are conscious of a slowing economy:
• “The Committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance,”
The Fed are comfortable that inflation is under control, and in the ensuing press conference, Jerome Powell was balanced around the economy: “I don’t see anything in the economy right now that suggests that the likelihood … of a downturn is elevated,” said Powell. However, stocks faltered as they got their anticipated sugar hit, but latched onto commentary that implied we shouldn’t get used to this size of cut.
Not a lot to hang ones hat on today, the index trading around in a tight range before ultimately ending flat ahead of the US Federal Reserve’s decision on interest rates tonight. They’re going to cut, the only question is by how much with traders erring on the side of a bigger 0.5% reduction to kick off an easing cycle that markets think will last until the end of 2025
The Active Growth Portfolio advanced 2.9% last week, including dividends, outperforming the ASX200, which gained 2.3%. We enjoyed solid gains by Mineral Resources (MIN) +24.9%, Evolution Mining (EVN) +14%, South32 (S32) +8%, Magellan (MFG) +7.6% and BHP Group (BHP) +6.4% while Worley (WOR) -2.3%, Treasury Wines (TWE) -2%, and CSL Ltd (CSL) -1.8% reined in the outperformance.
The ASX jumped out of the blocks this morning and made a new all-time high at 8148.8, though it was the magnitude of a beez……foot, just 1/10th of 1 pt above the previous all-time, intra-day high set on the 1st August at 8148.7. Stocks ultimately drifted lower through the session with some interesting corporate news flow hitting the tape, but little that turned the dial at the index level
Many subscribers may be surprised to learn that gold outperformed US stocks in 2024. In US dollars, year-to-date, gold has surged +25% while the S&P500 is up +18%—not too shabby by either! The prospect of declining interest rates has been a major driving force for both markets, with gold also enjoying strong buying out of China as the Yuan and property prices fell. However, markets never go up in straight lines forever, and we are conscious that “a rest” could be constructive for gold moving into 2025, i.e. similar to the pullback in mid-2023.
A lacklustre start to a week dominated by central bank calls on interest rates, headlined by the US Fed on Thursday night as weakness in China continues; data over the weekend showing China’s new home prices fell at their fastest pace in more than nine years in August, putting pressure back on the mining stocks today.
Official data released on Saturday showed that China’s new home prices fell at their fastest pace in more than nine years in August, with economic stimulus failing to deliver a meaningful recovery in the country’s property sector. New home prices fell 5.3% YoY, the fastest pace since May 2015, compared with a 4.9% slide in July. In monthly terms, new home prices fell for the 14th straight month, down 0.7%, matching a dip in July. Much to Beijing’s chagrin, China’s property market continues to struggle with heavily indebted developers, unfinished apartments, and declining buyer confidence, weighing on the overall financial system and endangering the year’s 5% economic growth target.
The ASX200 advanced +1.5% last week (inclusive of dividends) as the Materials Sector bounced back with a bang, while the high-flying financials were the only meaningful drag on the index. The out-of-favour commodities took it in turns to squeeze the shorts last week, with the lithium stocks soaring on Wednesday, passing the baton to uranium on Thursday, followed by coal and gold on Friday, ultimately delivering an impressive +6.2% gain for the Materials Sector over the week
