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Bonds have been driving stocks in 2024, and markets continue to look for rate cuts moving forward. The futures market has pushed back the timing of these well into 2025, while the risks of another hike this year have even crept back into the current pricing. However, a quick glance at the RBA Cash rate since the new millennium shows that after periods of major interest rate adjustment, we often see prolonged periods of no change, i.e. many, many months with a cash rate of 4.35% would not surprise. If today’s AFR story is on point and we won’t see rate cuts until next Christmas, the valuation of some areas of the ASX200 does feel rich.
Stocks were under pressure from the outset today, and a hotter-than-expected monthly inflation read didn’t help, with the ASX taking another leg lower after the data dropped at 11.30am. As has been customary in recent sessions, selling ticked up into the close with stocks ending near the session low, a sign of a tired market.
The questions ran hot yesterday around Boss Energy (BOE), even after we touched on the leading ASX uranium stocks on Tuesday following the news that the company CEO had sold over 70% of his shares in the uranium miner. Also, for good measure, the Chairman and another director also sold smaller parcels of stock. We can see the logic in taking some $$ off the table after the stock/sector’s great run in recent years, but all things being equal, they clearly don’t believe it’s going to double again anytime soon.
The Aussie market struggled without a lead today – US & UK markets closed overnight – so we chopped around in a tight trading range on low volumes, failing to embrace the positive move from US Futures.
At MM, we adopt a “top-down” meets “bottom-up approach” to investing. In other words, we identify the macro-picture and sectors which should outperform accordingly before boring down into the individual stocks which should benefit the most and pass MMs screening. Importantly, within individual sectors there are many different companies exposed to different drivers, and this is certainly the case in Energy sector where the likes of Thermal Coal, Oil, Gas and Uranium, can all be pulling in different directions at once.
Shares mirrored Friday night’s move in the US, starting the week on the front foot, turning around the bulk of the weakness seen on the local market last week. The rally was fairly broad-based with 75% of the index closing higher and Energy the only detractor from a sector point of view. There was little else to watch today given both US and UK markets are closed tonight.
The weakness across the ASX on Thursday and Friday was severe enough to leave MM questioning our short-term bullish outlook for stocks, but this morning, the local index is set to regain its composure and open up +0.6%. Some US indices tested fresh all-time highs on Friday night, an impressive effort following the hawkish Fed Minutes earlier in the week. Credit markets have largely taken a Fed rate cut off the table for September, while two cuts by January are now considered far from certain, yet equities continue to advance.
The ASX200 slipped -1.1% last week, although it felt much worse on Thursday and Friday as profit-taking swept through the Resources Sector following steep corrections in copper and gold. The catalyst for the move into the weekend was the release of the Fed Minutes from April 30th – May 1st, in other words, a great insight into the current thinking of Jerome Powell et al. The meeting came hot on the heels of a deluge of economic data that demonstrated inflation was remaining sticky
A soft session for the ASX to round off a volatile week for equities, a mixture of macro uncertainty around interest rates and a pullback in commodity prices, coupled with a bunch of results/trading updates that were a mixed bag at best.
US stocks endured a tough day at the office overnight, with the Real Estate and Utilities faring the worst after the Fed minutes saw investors reduce bets for rate cuts into 2025. Also, we saw firm economic data, which compounded the nervousness post Fed with Services and Manufacturing data printing strongly. Nvidia (NVDA US) soared after delivering a solid earnings beat, but it wasn’t enough to turn around the concerns arising from the Fed Minutes – note that the stock is to undergo a 10-1 split; hence, it won’t be trading above $US1,000 for long!
