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The bulls were on the front foot today as the prospect of peak rates permeated through the market, interest rate-sensitive sectors saw the most love led by the depressed property sector.
As most probably know by now June’s inflation data was extremely market-friendly coming in at +5.4%, well below the +5.6% median forecast of analysts, but importantly, the quarter-on-quarter run rate was 0.8% (i.e. annualised that’s 3.2%). As would be expected bond yields and the $A fell while the ASX200 rallied ~100 points following the news. The markets are now starting to agree with us, the odds of a hike in July have crashed while there’s an increasing possibility that Official Rates have peaked at 4.1%.
The ASX hit a 5-month high today thanks largely to inflation that again went in the right direction, while strength across the commodity stocks continued on the expectation of Chinese stimulus. There was a slew of company news to keep markets on their toes as well, less than a week out from the start of reporting season.
Xi Jinping’s pledge to revive growth is gaining traction even though the latest promises from the Politburo were very skinny on detail/specifics. The sceptics will point to the previous busts of optimism failing to follow through and stocks eventually slipping lower but we believe the tone is the key to the latest rhetoric plus the recognition of the challenges that lie ahead which combine to be bullish in our opinion.
Resources stocks led the charge today as signs that China is edging towards more widespread stimulus underpinned the commodity trade, while Energy also enjoyed the move. While the market was up, it wasn’t broad-based with more stocks ending the session lower. Notably, the index still managed a reasonable gain despite the highly important Financials sector down more than half a percent.
Last week saw a new Lithium Futures contract start trading in China but it was a rocky start for the essential ingredient for current-style electric-vehicle batteries. Contracts for January’24 delivery plunged below 214,150 Yuan on Friday and while paring early losses they still closed -13% lower as the market flags lower prices during that time frame. These new contracts are aiming to provide more transparent lithium pricing while enabling both producers & users to hedge their risk moving forward.
A lacklustre way to start the week with the market chopping around in a tight 27pt trading range as strength in Energy & Property was offset by weakness amongst the Resources, particular the Lithium stocks that got the jitters after a new Chinese Lithium Futures product was met by a barrage of selling…
The world’s major central banks meet this week with signs of an improving inflation picture permeating through from recent economic data, and while the ECB and Fed are still largely expected to raise rates by +0.25% it’s the accompanying rhetoric that’s likely to dictate how equities react i.e. are more hikes likely this year or can consumers look forward to an extended pause. With neither institution meeting until September, a hike feels likely this week after both Christine Lagarde & Jerome Powell have stated that inflation remains too high.
The ASX200 ended the week basically unchanged after drifting lower on Friday under the weight of heavy selling in the Tech Sector following a weak session in the US on Thursday. Over the 5 days activity was again focused under the market’s hood with strong gains by the Financials offset primarily by losses in the Resources. We saw 2 areas of macro-economic news which dictated the relative performance, firstly strong economic data, including employment numbers locally, saw bond yields rise and secondly ongoing weak growth numbers out of China weighed on an already struggling commodities market:
Local shares tracked US markets lower today as we head into the weekend, though there clearly remains some bullish interest with plenty of support for equities throughout the afternoon. Higher bond yields continued to weigh on the Tech sector which was also dragged down by softness being seen in US reporting on Thursday night. Index heavyweight Financials gave back some of the recent outperformance with banks consolidating recent gains and despite the weakness today Financials was still the best performing sector this week.
