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Quite a bizarre day for stocks with the market lower overall, although there were some decent intraday-rallies met with some decent intraday selling; ultimately a very choppy session on low school holiday volumes that saw the ASX 200 track back and test the bottom of its recent trading range – chalking up a 6-month low in the process.
The ASX200 has held the psychological 7000 area for the last couple of weeks, but it struggled to maintain a meaningful recovery on the upside as the overall market doesn’t appear to be attracting fresh funds, i.e. investors are happy to switch, but the allure of cash yielding ~4.5% is keeping some money on the sidelines. Yesterday, the AFR said that 42 economists they surveyed believe the RBA will cut rates in August 2024 compared to the previous expectations for a May cut, suggesting investors will need to be very patient to get a policy-induced tailwind.
September is finally in the rear-view mirror with the ASX200 ending the month down -3.5% (excluding dividends). However, it was encouraging last week to see some “buying into dips” enter the market, with the index often ending at its highs for the day, the Energy Sector +1.98% was again the shining light while the rate-sensitive Tech and Real Estate Sectors, struggled, both falling over -1%. Bond yields again dominated proceedings as they continued to challenge their decade-highs, which led to further stock/sector rotation:
Low volumes seen across the bourse to round out the week. A quiet Friday from the market’s perspective given Melbourne’s public holiday today (and Much of Australia off for Monday). Materials continued to do well, offsetting the Energy sector which gave back some gains after a strong week. A small decline (-20pts / -0.29%) seen on the ASX200 this week.
Gold in China fell the most in 3 years on Thursday, almost closing the gap with international prices that’s persisted for weeks. The precious metal tumbled -3.8% on the Shanghai Gold Exchange, with losses accelerating into the close, creating the impression that investors/traders were caught long. The pullback followed a major rally in local prices that had lasted for months, creating a record premium to that outside of the country until the elastic band inevitably snapped back.
The ASX200 traded ~25pts either side of yesterday’s close today before closing marginally lower in a choppy session. Resources sectors were the shining light today, Energy and Materials were the only areas of the market to finish higher. Local 2-year bond yields hit 2-month highs today, one of the reasons the broader market was weaker today.
China’s property woes again dominated the financial headlines overnight, with China putting Evergrande’s billionaire founder under police control while the mansion seized from the chairman was listed for $112mn – a far scarier proposition than faced by most of their local equivalents. China property stocks slid to their lowest level since 2011 as recent short-term optimism evaporated on the news, plus the ongoing weight of massive debt problems.
A solid session given the weak leads from the US overnight, inflation came in as expected while we saw some bargain hunting in the property sector with some interesting moves playing out after a tough time.
The last few weeks have seen bond yields test new decade highs, the Australian 10-year closed above 4.4% on Tuesday. Stocks have struggled through September as yields climbed higher, in our opinion, primarily because most investors had positioned themselves for rate cuts in 2024 that now seem a pipe dream. i.e. the crowd was wrong. At MM, we continue to believe that the current decline by local bonds (yields higher) will ultimately fail, but after breaching their support that’s held since June 2022, moves into Christmas are probably in the hands of US Treasuries.
The ASX attempted to follow the recovery that played out from weakness over the past two sessions, but it was all too much today, weighed by selling across the IT & Resources sectors as China heads towards a week of national holidays, starting on the 29th.
