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The ASX200 finished the shortened week on Friday up +1.8% as the influential Tech, Financial and Materials Sectors all closed up over 3%. China was the catalyst for the miners as they cut rates for the 1st time in 10 months, at MM we have been looking for the Resources Sector to trigger buy signals after analysts have become fixated on a looming recession, this may still unfold if central banks fail to balance their fight against inflation with an economic contraction but China pressing the stimulus button is a huge help for commodities and related stocks. We are bullish on the Resources Sector medium/long term and plan to increase our exposure over the coming months, as opportunities arise.
The ASX200 ended last week up +1.8% with the influential Tech, Financial and Materials Sectors all closing up over 3%, if wasn’t for a painful downgrade by heavyweight CSL Ltd the index would have been testing multi-week highs. China lit the fuse in the miners while the Fed didn’t deliver any nasty surprises after a market-friendly inflation read on Tuesday and subsequent pause on interest rates on Thursday. We’ve mentioned a few times over recent weeks that the markets positioned too bearishly, which has been illustrated by how easily stocks have shrugged off a plethora of bad news but one glimmer of hope from Beijing and the markets threatening to break out on the upside after many weeks of consolidation.
The ASX finished the shortened week on the front foot today with healthcare being the only sector to fall on Friday’s session. The index strength came on the back of gains in energy and materials as commodities caught a bid largely thanks to growing confidence in stimulus in China. Coal stocks were a notable winner in the session, continuing the rally seen this month with Newcastle Coal futures trading more than 3.5% higher today.
The ASX200 closed up +0.2% yesterday helped by a firm Banking Sector, the “Big Four” gained an average of +0.6% in a relatively quiet session which saw stocks drift from their highs following strong employment data at 11.30 am – the unemployment rate fell to 3.6% increasing expectations of another rate hike by the RBA. The strong data probably helped support the banks with the 5th pillar Macquarie Group (MQG) leading the charge gaining +2.3%.
The ASX ticked up to the highest level in more than a week on the back of strength in both mining and financials stocks early on. The advance was halted by stronger-than-expected employment data with the Australian economy adding 76k jobs in May and the unemployment rate falling to 3.6% – the strong data lifting expectations of another, if not two more hikes by the RBA in the next few months. The index gave back all the early gains to trade marginally lower around midday, though buyers returned into the afternoon to help eke out a small gain. Healthcare was again the laggard while Tech continues to show strength.
MM is tweaking two portfolios
Arguably the weak link of the MM Flagship Growth Portfolio through 2023 has been our overweight healthcare exposure i.e. we have 13% in the Healthcare Sector which is above the 10% of the broad index. Hence, if we are overweight a sector that’s not delivering results we must reassess, especially after its largest member and the 3rd largest stock on the ASX suffered a rare negative rerating yesterday.
Commodity stocks were the place to be today enjoying the more bullish rhetoric coming from China, the sector underpinning a solid move higher at the index level and more than offsetting a softer-than-expected update from heavyweight CSL.
The elastic band continues to stretch between the top performing tech sector and the underwhelming value names such as banks & resources but as MM has been regularly trotting out the last 12 months has been about the strong getting stronger, and in our opinion, until the world regains confidence that the global economy can avoid a painful recession in today’s new high-interest rate environment, this trend could continue.
A positive session to kick off the shortened week which will be dominated by key US economic data. CPI Inflation tonight in the US is expected to be benign, up just 0.1% MoM and 4.1% YoY, down from 4.9%. This should mean the Federal Reserve holds rates at 5-5.25% on Thursday, although the market has largely priced in another 0.25% increase in July.
