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Stocks started the week higher ahead of the RBA decision on interest rates tomorrow, a hike the more probable scenario according to both economists and interest rate futures, however on balance, we believe they shouldn’t and won’t hike as weakness creeps into the local economy, the 1H of 2024 could be a testing time for many people in Australia and we see no reason for the RBA to come off the sidelines after sitting pat for 4 straight meetings, especially given the changing bias in the US last week.
The RBA step up to the plate tomorrow with their latest rate decision. On balance, we believe they shouldn’t and won’t hike as weakness creeps into the local economy, Q1 and Q2 of 2024 could be a testing time for many people in Australia. However, the futures markets are leaning towards a hike after four consecutive meetings where rates were left steady, although consensus has been bouncing around from economic print to economic print, both at home and overseas. The US employment numbers on Friday were weaker than expected, boosting hopes the Fed has finished hiking rates while the UK is already flirting with a recession, it surely isn’t the time to hike for the RBA.
It wasn’t quite the running of the bulls at Pamplona, but after the selling we’ve witnessed through September and October, it was a very welcome “Relief Rally”, or perhaps more. The ASX200 ended last week up +3.4% from Monday’s intra-day low, with the index rallying around 200-points over the last 3-days with strong buying in the rate-sensitive Real Estate +6.7%, Tech +4.5%, and Healthcare +4.3% sectors, laying the foundations for a stellar week while only the Utilities and energy stocks reined in the markets gains.
Stocks were up for a 4th straight session today with the main board now ~3.5% above this week’s low, a sharp turnaround since Jerome Powell hinted that the Fed has ended the most aggressive rate hiking cycle in history, with US 10-year yields now ~40bps below recent highs.
The Real Estate Sector has endured tough times of late, the local sector is down close to 5% in 2023, while the US equivalent has plunged over -38% from its early 2022 high, less than two years ago. Post-Covid, we’ve seen some tremendous returns from battered sectors when the dial finally turned with Tech, Coal and Gold all coming to mind, we believe the Property Sector could be throwing its hat into the proverbial ring as the next candidate.
Dovish commentary out of the Fed overnight helped to support equity markets globally over the last ~12 hours, and the ASX was no exception. Interest rate-leveraged sectors of Tech and Real Estate were the most significant beneficiaries as the rally in bond yields cooled off. The US 2-year yields fell back below 5% and Australian bond yields were also lower throughout our session.
Yesterday, BHP announced they were on track to invest another $7.7bn into the second stage of its mammoth potash project based in Canada. The investment is set to double production, making its Jansen potash project one of the world’s largest mines – BHP has to adopt a “get big or get out” approach to the investments; otherwise, it simply won’t move the dial on its earnings profile, the primary reason it hasn’t ventured into lithium. The war between Russia and Ukraine has seen prices double, creating inflation across the food industry, with potash being a core fertiliser for crops such as corn and wheat.
Some reprieve from recent weakness across the ASX today with stocks holding onto morning gains to finish at session highs, up 0.85%, after a weak October saw the market down 3.8%, underperforming global peers.
MM is buying HCA US in the International Equities Portfolio
US indices rallied overnight, reducing losses for October but still registering its first 3-month losing streak since 2020, the S&P500 closed up over 0.6% near the session’s high – bond yields surging to levels not witnessed for 16-years have weighed on stocks through September/October. Real estate and financials outperformed on the sector level while it was a mixed bag under the hood of the influential tech sector, with NVIDIA (NVDA US) and Meta Platforms (META US) closing lower.
