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We’re halfway through September, the seasonally weakest month of the year for the local market, and it’s so far so good, with the ASX200 down just -0.4% following Fridays +1.3% advance. The Materials Sector sprang to life after the PBOC cut reserve requirements, MM we’ve been waiting for Beijing to pull the stimulus lever, which would have investors believing that the world’s second-largest economy can return to solid economic growth – We may have just witnessed this very catalyst last week. By the end of the week, 8 of the market’s 11 sectors had closed higher, but it was the +3.9% move by the Materials Index which helped catapult the ASX200 up +1.7%, the Financials came in a distant second up +2.5%.
The stars aligned for a strong finish to the week, and the ASX delivered with its best one-day rally in more than 8 weeks today. All sectors were higher today, led by a resurgent materials sector thanks to strong commodity prices. It was a very broad-based rally today with 80% of the ASX200 finishing higher with money keen to pile into the market. The index posted a gain of 122pts/+1.71% this week, recouping the losses of last week.
Uranium stocks have surged higher over the last 48 hours and we believe this is a move to embrace, not fade – remember our very bullish outlook in the MM Resources into FY24 webinar. The uranium price has more than doubled over recent months, posting fresh decade highs in the process. It’s a straightforward game of supply & demand that has reached a tipping point as Utilities that have been drawing down inventory levels suddenly have to chase supply.
After a muted open, shares were well supported on the local index today. It seems buyers held back yesterday with the US Inflation data last night, but once that print had passed, it was mostly a one-way street higher. Resources were the main contributors, helped by a strong iron ore price which continues to defy the bears. Banks were also well supported, particularly following strong local jobs data.
Not surprisingly, the correlation between the S&P500 Energy Sector and the crude oil price has been very strong since well before COVID but since Q4 of 2022 stocks have noticeably outperformed and are starting to feel stretched in comparison. Also, the Energy Sector has become a favourite of quant models/fund managers over the last few years as it grinds ever higher against a choppy and uncertain backdrop.
The market was on edge today ahead of the US inflation read tonight which is expected to show headline CPI of 3.6% for August, up from 3.2% in July due to higher energy prices, testing the narrative that inflation has peaked and so too have interest rates. So, some risk off today throughout Asia while US Futures offered little in the way of support.
The ASX200 again recovered from early weakness to close up +0.2% although we still saw more stocks decline led by the Energy Sector although the market appears to have got this one wrong following crude oils pop over $US91/barrel last night. This morning may see many short-term players hang on the sidelines ahead of this month’s important inflation data out of the US, the interpretation of which plus next week’s FOMC meeting is likely to set the tone for bond yields over the coming weeks.
A similar trend to yesterday played out today where weakness in the morning attracted buyers, the ASX200 finishing +50pts up from the session lows to end higher ahead of key US Inflation data due out Wednesday.
Investors focused on the future, as is usually the case, with the index closing out August down -1.4%, although it’s important to note the month was weak across global indices. The most prevalent headache for companies this profit season has been escalating costs, so far, these have largely been passed onto customers, allowing companies to defend profit margins, but the question is, can this be continued?
A soft opening by the ASX this morning before data from China that showed recent stimulus is increasing liquidity across their struggling economy prompted buying and the index rallied +58 points from the 11 a.m. low of 7134, to close on the session highs, which is a bullish sign.
