Archives: Reports
A sea of red today from Shanghai to Sydney with stocks pulling back from recent highs, the RBA’s dovish move yesterday a distant memory as local reporting stumbles into gear.
MM is adding two new positions to the Emerging Companies Portfolio.
The retiring Governor Philip Lowe has put the RBA firmly into “data dependant mode” as they monitor inflation, consumer spending, wages and overall business conditions – most of which have been heading in the correct direction over recent months. Our preferred scenario at MM is that both interest rates & bond yields have topped for at least 2023.
The ASX was enjoying another positive session ahead of the RBA decision at 2.30 pm, with their call to sit pat at 4.1% supporting another leg higher for stocks and a leg lower for bond yields and the AUD. The associated messaging sounds increasingly like a central bank that sees the hiking job as complete, and while they will remain data dependent, this move can only be described as a ‘dovish pause’.
The last 1-2 years have been all about the “strong getting stronger” and vice versa but like all good trends, long and short, they eventually turn &/or simply run out of steam. However, we believe it’s very important with today’s theme, which we have touched on previously, to adopt the simple adage of “if in doubt stay out” as not all companies will turn the corner if bond yields for example move lower, some are simply in need of serious repair.
The calm before the earnings season to start the week & end the month of July with the ASX higher on open, soft in the middle before a recovery into the close, ultimately ending the session little changed in aggregate and still only ~3% below all time highs. July has been a volatile month for equities.
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
