Archives: Reports
Two out of the 3 major central banks followed the anticipated playbook last week although Japan surprised many as they signalled a move away from easy money, remember what MM said this time last week:” Japan is a harder one to pick with inflation above the BOJ’s 2% target but analysts still expect ongoing support to be injected into the world’s 3rd largest economy – it will until one big day!” – that day arrived sooner than many expected.
Despite a weak session on Friday, the market enjoyed a solid five days up by an aggregate +1.23% hitting new five-month highs in the process. All sectors made gains however it was the Energy & Technology shares that did best, while the more defensive Healthcare & Staples were relative underperformers. The ASX 200 has now oscillated back up towards the top of its trading range, just 229pts/3% below its all-time high set nearly 2-years ago. Interestingly, the 7632 high achieved back in 2021 occurred during the height of full year reporting season, with this year’s results period kicking off on Monday.
A weak session to end what has been a positive week overall for equities as the market edged tentatively towards the view that interest rates have peaked. However, as was rumoured overnight, the Bank of Japan (BOJ) today loosened its signature yield curve control measure (artificially suppressing bond yields) which means there is likely more to come.
When markets are around inflection points it’s important to remain focused on what is unfolding and of course how to invest accordingly, our core market view through the 2H and into 2024 is that bond yields will retrace some of their strong gains over the last 18 months as central banks start to win the battle against inflation
The bulls were on the front foot today as the prospect of peak rates permeated through the market, interest rate-sensitive sectors saw the most love led by the depressed property sector.
As most probably know by now June’s inflation data was extremely market-friendly coming in at +5.4%, well below the +5.6% median forecast of analysts, but importantly, the quarter-on-quarter run rate was 0.8% (i.e. annualised that’s 3.2%). As would be expected bond yields and the $A fell while the ASX200 rallied ~100 points following the news. The markets are now starting to agree with us, the odds of a hike in July have crashed while there’s an increasing possibility that Official Rates have peaked at 4.1%.
The ASX hit a 5-month high today thanks largely to inflation that again went in the right direction, while strength across the commodity stocks continued on the expectation of Chinese stimulus. There was a slew of company news to keep markets on their toes as well, less than a week out from the start of reporting season.
Xi Jinping’s pledge to revive growth is gaining traction even though the latest promises from the Politburo were very skinny on detail/specifics. The sceptics will point to the previous busts of optimism failing to follow through and stocks eventually slipping lower but we believe the tone is the key to the latest rhetoric plus the recognition of the challenges that lie ahead which combine to be bullish in our opinion.
Resources stocks led the charge today as signs that China is edging towards more widespread stimulus underpinned the commodity trade, while Energy also enjoyed the move. While the market was up, it wasn’t broad-based with more stocks ending the session lower. Notably, the index still managed a reasonable gain despite the highly important Financials sector down more than half a percent.
Last week saw a new Lithium Futures contract start trading in China but it was a rocky start for the essential ingredient for current-style electric-vehicle batteries. Contracts for January’24 delivery plunged below 214,150 Yuan on Friday and while paring early losses they still closed -13% lower as the market flags lower prices during that time frame. These new contracts are aiming to provide more transparent lithium pricing while enabling both producers & users to hedge their risk moving forward.
