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The local market tracked lower as the day rolled on as investors took some risk off the table ahead of the long weekend. Most sectors were lower, but tech felt the brunt of the pain, Resources sectors were also soft and while Financials were down, they outperformed the weaker market. Healthcare and Utilities were the main standouts. The market gave up 45pts from its highs to briefly tip below 7200 again, before recovering around half of the fall in the last 2 hours of trade. As the Aussie market enters a 4-day weekend, US Employment data will be released tomorrow night and their equity market is open on Monday.
US stocks experienced a mixed session overnight as Easter approaches with some profit taking hitting tech stocks after their strong advance through 2023 while energy and healthcare names were strong – profitless tech stocks were some of the worst on ground as traders went to cash into the break. Overall it was a “risk off” session which saw bonds rally following weaker than expected economic data – the spread between 3-month bills and 10-year Treasury notes is sitting at its highest in decades, historically a reliable sign that the US economy is headed for a slowdown &/or recession.
A nothing day for the market with stocks up early, down late, ending the session little changed. Expect no real movements either way ahead of the Easter Long Weekend where US markets are closed on Friday while in Australia, the ASX is closed both Friday & Monday, although US Non-Farm Payrolls are still being released on Friday night (+240k expected with their unemployment rate to stay steady at 3.6%).
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!
