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The ASX200 reacted badly to the “surprise” RBA rate hike but after a rapid 250-point drop buyers returned albeit in very specific pockets of the market e.g. ESG and gold names. The markets experienced a rollercoaster ride of sentiment over the last 2-year yet the markets remained largely range bound between 6500 and 7600, in this case we believe it’s a case of if it’s not broken don’t fix it i.e. de-risk in the 7400-7600 area and increase market exposure/risk below 6750.
The ASX200 fell -1.2% last week following a poor performance from the banks both at home and in the US, the ASX200 Financial Sector closed out the week down -3.4% while the Utilities and Real Estate Sectors were the only 2 market pockets to close in positive territory. The local banks suffered as the US regional Banks plunged another -20% before bouncing on Friday while local sentiment soured following Thursday’s disappointing result from National Australia Bank (NAB), better earnings from ANZ Bank (ANZ) and Macquarie Group (MQG) on Friday weren’t enough to repair the damage
A positive session to end a tough week for the market with some confidence stemming from solid results out of ANZ & Macquarie (MQG) despite the latter ending lower on the day. For the week, the ASX 200 lost 1.22% with the financials the biggest headwind, while it was pleasing to see a bounce back in the property sector despite the increase in rates – a sign that the market believes rates have hit their peak!
The ASX200 had felt tired over recent weeks but that’s now translated to outright vulnerability as buyers retreat on worsening economic/company news which is leading to increased weakness in the current low-volume environment. However, not all stocks/sectors are moving as one as we saw yesterday when the banks fell after NAB’s result while the resources enjoyed a strong session e.g. oil stocks rallied even after a more than 4% dip by crude oil.
The market opened sharply lower this morning before a spirited ~50pt fightback that saw 75% of the main board actually finish up on the day. Banks dominated following a weaker than expected 1H23 result from NAB which threw the cat amongst the pigeons, weakness in the big 4 taking 44pts off the ASX200 ahead of ANZ & Macquarie (MQG) reporting tomorrow, while Westpac (WBC) is out on Monday.
The ASX200 has felt tired over recent weeks, as we’ve been highlighting, but that’s translated to outright vulnerability following a couple of weak sessions on Wall Street and the surprise rate hike by the RBA on Tuesday – recession fears are clearly gathering momentum. At MM we had adopted a more defensive stance into May but after seeing the local index fall over 100 points at one stage yesterday it poses the question of whether we should migrate even further down the risk curve.
The Match Out: ASX continues to slide on higher rates, Ramsay (RHC) back growing, just not by enough
A tough day at the office with the ASX now down ~150pts/2% since Philip Lowe et al surprised the majority (Chris Joye will say we’re all idiots!) and raised rates by 25bps, a move which is likely to be reflected in the US tonight as their Central Bank steps up to the plate. However, it wasn’t all one-way traffic today with a spirited fight back (+40pts) from mid-afternoon lows, as the ‘buy the dip’ mentality emerged. Gold stocks a stand out while some select industrials also went against the grain, encouragingly 20% of the main board actually closed higher.
The RBA surprised the vast majority of market participants at 2.30 pm yesterday as they hiked the Official Cash rate from 3.6% to 3.85%, a brutal outcome for homeowners languishing under the mounting pressures of rising mortgage repayments. Our preferred scenario was they would hold at 3.6% until Christmas, that opinion went up in smoke after just one pause in May. The decision by Philip Lowe et al could prove the correct move but it was extremely confusing considering the guidance in the lead-up to Tuesday – they paused in May to watch and consider future economic data, the CPI print came in better than expected and they hike, on this occasion, it’s not surprising that most people called it wrong.
A fairly subdued morning before RBA Governor Dr Philip Lowe stepped up to the plate and surprisingly raised interest rates when the vast majority thought they would remain on hold. That sent the AUD sharply higher, bond (prices) & equities sharply lower which materially pushed up yields.
The Australian Banking Sector has noticeably outperformed its US peers courtesy of the strength of the “Big Four” – the press so often likes to knock our banks but they’ve definitely helped most Australians super over the last few years. The sector is trading on an inexpensive valuation relative to its long-term average but most analysts believe the banks will be close to peak profit for their 1H23 results. At MM we are expecting strong results overall, driven mainly by timing differences on interest rate increases and NIM (net interest margin) tailwinds. Conversely, headwinds we must be aware of are higher funding costs, strong competition for deposits and loans, worse-than-expected bad debts, and ongoing tightening of bank regulation.
