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The RBA left interest rates unchanged at 3.6% yesterday, it was their first pause after 10 consecutive hikes which has seen the Official Cash Rate soar from 0.1% to 3.6%. Much has been written about Tuesday’s meeting both before and after hence this morning we’ve focused on what MM believes are the salient points of the accompanying RBA minutes and our subsequent interpretation.
The main focus of the market was on the RBA call at 2.30pm this afternoon as the Central bank decided it had had enough of hiking rates for now in line with the market’s view, the first hold after 10 consecutive hikes by Governor Lowe. Energy was the place to be again today, though it was more the coal names carrying that sector higher while yesterday it was the oil and gas stocks. Tech was also strong, defying the weakness in the Nasdaq overnight. Materials were the main drag on the index, mostly as a result of weakness in iron ore.
Ironically the RBA created this very same “mortgage cliff” by giving banks cheap 3-year money which was simply passed onto borrowers as fixed home loans, all very nice when the cash rate was at 0.1%. In our opinion, the RBA has not played the last few years like a proverbial Stradivarius having provided “free money” for too long after COVID only to compound the error by conveying the incorrect message to borrowers that rates would stay low into 2024 before finally hiking too late as we all saw inflation building across the Australian economy – hopefully, today they will start along the path to market redemption.
The ASX saw the best of it early on today, buoyed by overseas strength on Friday while a ~7% rally in the oil price this morning following OPEC+ production cuts had the Energy sector flying, however, higher Oil prices are inflationary which is a net negative for the trajectory of interest rates, once that sunk in, equities pulled back from early highs.
The inverse correlation between the ASX200 Tech Sector and 3-year Bond Yield is very clear i.e. when bond yields fall tech stocks rally and vice versa. The local tech stocks looked poised to follow their US peers to fresh 2023 highs although a few local names struggled in 2023 e.g. BrainChip Holdings (BRN) -36%, Megaport (MP1) -35%, and to a lesser extent Life360 (36) +1.7%.
The ASX200 has closed up ~2% for the quarter even as we saw the RBA hike interest rates twice and the global banking sector teetering on the edge of a full-blown crisis. Equities continue to defy the numerous bears although it’s been far from one-way traffic so far in 2023 with the Energy & Financial Sectors falling while the interest rate sensitive names soared le by the Consumer Discretionary Index which soared +9.9%. An eclectic bunch of stocks caught our attention in both the winner’s and losers’ enclosure with M&A and reporting season exerting a huge influence on many stocks over the 3 months:
A solid day to end the week, month & quarter with the ASX putting in strong back-to-back sessions, the market up +3.2% this week alone led by a strong bounce back in Material stocks. For the quarter, the market was up +4.01% inclusive of dividends with the Consumer Discretionary sector up an impressive 12% – this goes to show that market performance doesn’t correlate with mainstream media headlines, so much for the doom & gloom in retail!
We remain bullish on the Materials sector hence we’re always looking for the best opportunities to exploit gains across these value stocks. Today we have reviewed 2 of the best-performing stocks so far this year and one laggard as we consider the next likely tweaks in our portfolio construction, especially if we see further strength in growth names that is likely to see MM to profit from some overweight positions.
Equities caught a bid today as investors showed a more rational mindset with fears on the back of SVB eased. The local market followed the lead of the US to add ~1% today and around 75% of the ASX200 index closed higher on the session. Banks bounced back from yesterday’s selling helping the index finish more than 1% higher. Tech was the biggest gainer today while Real Estate was the only sector to finish lower.
The market-friendly inflation print reversed earlier stock market losses to take the local index up +0.25% led by ongoing strength in the Resources Sector while selling in the banks courtesy of UBS’s downgrade was enough to restrain gains on a day when surprisingly there were more losers than winners. The growth stocks in Australia continue to underperform their US peers and even with the increasing likelihood of no further rate hikes the healthcare and IT stocks delivered mixed performance on Wednesday – we still see 6-8% upside from the US NASDAQ hence we are sticking with our overweight call on the sector locally.
