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The ASX is back-testing highs with a short foray above 7900 this morning before we ticked back below the milestone by the close. Still, it was a very positive session for local stocks, keying off a more broad-based rally in US overnight i.e. it wasn’t just the mega-cap tech stocks that moved, the often neglected US Material sector was No2 for the session driven by strong moves in Uranium shares, while the small caps (Russell 2000) kept pace with the larger caps ahead of quarterly earnings that is expected to show US earnings growth spreading across a more diverse group.
The ASX200 closed down 0.2% on Wednesday but felt like a positive day to MM, with the index rallying from its early morning low to close near its intra-day high – if it weren’t for ongoing weakness by the large-cap iron ore names, it would have been a bullish reversal, e.g. BHP -1.3% and RIO -1%. The market’s internals were okay, with only 52% of the ASX200 closing lower on the day, while the index itself remained above 7800, within 1.2% of its all-time high. As we’ve said a few times of late, all things being equal, the path of least resistance for the index is up, but the resources need to hold at least steady for the ASX200 to test 8000. The underperformance of the influential iron ore names, considering we’re close to all-time highs, is eye-catching:
A weak open this morning saw the ASX down over 50pts at the low, though a consistent recovery for the remainder of the day saw the market only mildly down by the close, an eclectic mix of stocks scattering the leaderboard. What has been consistent is the underperformance of some commodities, going against the improving trends that played out last week, though Gold remains the exception.
Fed Chair Jerome Powell delivered a dovish testimony overnight, warning of the dangers of keeping interest rates too high for too long: “Reducing policy restraint too late or too little could unduly weaken economic activity and employment” and “More good data would strengthen our confidence that inflation is moving sustainably toward 2 per cent.” With the US June CPI set for release on Thursday and PPI on Friday, the groundwork has been laid for rate cuts into Christmas.
When volumes are low, intra-day moves tend to persist in the direction they start given the majority of institutional trading now is done over the day with a greater proportion of the volume completed on the close i.e. in the ‘Match Out’. Yesterday’s price action was down, today was up, but the consistency in the trends were very similar. All 11 ASX sectors locally finished higher mirroring a positive move in Asia, the banks adding the most from an index perspective while Telstra (TLS) also chimed in, with the Telco now up 10% since the start of June.
The ASX200 started the week in poor fashion, following S&P500 futures lower throughout the day in anticipation of a weak opening by Europe following the surprise French election result. Last week, markets were concerned about Le Pen, but as the results rolled in on Sunday, concerns migrated towards potential reckless spending by the victorious Left, i.e. the market interpretation being that it’s good news the Far Right lost but bad news the Far Left won. Ultimately though, moves across financial markets have been relatively muted on the view that political gridlock may at least limit the ability of the Left to enact its big-spending plans.
The choppy price action locally continued today, with the market giving back last weeks gains as low school holiday volumes take hold. While we believe the market will break out of its trading range at some point, for now, the range is being respected which requires a more neutral stance.
Friday’s US jobs data showed further signs of an easing labour market, which adds additional support to the case for the FOMC to begin cutting interest rates over the next few months – the futures market is anticipating the first cut in September. The action under the surface of the US bond market is an interesting one, with the gap between the 2s and 10s steepening to almost 20bps as markets price in more issuance down the track to pay for the likely increased spending of whoever wins the November election
The ASX200 ended the first week of July up +0.7%, an encouraging performance considering the dip on Monday/Tuesday. The Energy and Materials Sectors led the gains, which weren’t broad-based, with seven of the market’s eleven main sectors closing lower. At MM, we haven’t hidden our view that these two sectors are set to outperform through FY25. However, we’re very conscious that one week doesn’t change a trend—the previously high-flying tech and utilities sectors were the market’s worst-performing sectors last week
A bit of a nothing end to the week with the ASX down mildly as we await key employment data from the US tonight, and digest the Labour Party win in the UK, ahead of the 2nd round of French elections this weekend. After a shaky start to FY25, we got our mojo back midweek to chalk up a reasonable gain, underpinned by good moves from Energy & Resources.
