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Resilience was shown on the ASX again today, continuing the relief rally that kicked off yesterday. Commodity-linked stocks were once again the main focus with follow-through buying on the back of China’s support of their property sector. Energy was the key standout though thanks to signs that Russian production had started to slow and comments from the Saudis supporting the OPEC+ actions to stabilize oil markets. In a shift away from recent history, tech was the laggard on the local market today. All eyes will be on the US Inflation data due out at 10.30 pm tonight.
The ASX200 surged higher yesterday significantly outstripping a solid session on Wall Street, the local market ended up +1.5% with over 90% of the main board closing in positive territory. A particularly aggressive final 10 minutes saw strong buying in the SPI Futures suggesting some position covering following the volume selling witnessed over recent weeks. While all 11 sectors closed higher on the day the fact that 8% of the main board closed up more than 4% while no stocks fell by 2% really illustrates the market’s strength into tonight’s potentially pivotal CPI.
Strong resilience was shown on the local market starting on the front foot today but highlighted by consistent intra-day buying, grinding higher throughout the session to put on more than 100 points. Just 7% of the index closed lower with all sectors adding more than 0.5%. Just like the US market overnight, the small-cap index (S&P Small Ords) outperformed with a 2.14% jump today.
The ever-existent problem with catching “falling knifes” in the share market is the intrinsic reason behind why a company has been struggling i.e. history tells us that buying stocks making fresh quarterly lows leads to portfolio underperformance hence it must be recognised as a contrarian play with exposure aligned accordingly.
The ASX saw the best of it early on Monday morning, initially rallying ~0.6%, looking to recover some of last week’s losses. Banks, miners and energy sectors supported the index before traders faded the strength throughout the rest of the session. The ASX200 settled at its lowest close since late March with the only shining light being the Tech sector.
Equities seemed to buckle under the weight of bond yields last week with all of the major indices enduring a tough week. In many developed countries including Australia, Canada, New Zealand, the UK, and the US short-dated bond yields posting fresh multi-year highs appeared to be the catalyst for the falls. At MM we believe the short-term undoing for stocks was primarily down to the market being positioned incorrectly.
Global bond yields posted fresh multi-year highs last week with the hawkish move sending stock investors running for cover. The RBA and Fed may have hit the “pause button” in recent months but bond markets, following hawkish rhetoric from central banks, now believe they will need to hike again in 2023 to arrest inflation. The major problem for equities was that investors had positioned themselves for a pivot/top sooner rather than later and even some potential for rate cuts before Christmas – we always believed economists were dreaming to hope central banks would start cutting interest rates in 2023.
The local market fell to levels not seen in 3 months today on the back of a swift turn higher in bond yields The local 10-year yield was up 15bps/~3.5% early on in the session, settling at 4.255% driving a shift away from risky assets. There was little appetite to add exposure on a Friday either, resigning the market to a ~200pt drop over the last 3 sessions. All sectors closed lower while the ASX200 closed down 2.24% for the week.
Most investors are far better buyers than sellers, no great surprise as we are all wired to be emotionally dominated by “Fear & Greed”. However common sense tells us that selling is every bit as important as buying as it plays an equal role in our alternatives at any one time i.e. buy, sell or simply do nothing.
A tough day for the Aussie market with broad-based selling knocking shares sharply low – the higher beta parts of the market felt the brunt of the risk-off attitude while the IT stocks were the only ones to finish up on the day – WiseTech (WT) +0.98% only knows one way!
