Archives: Reports
Investors and traders alike are going to be bombarded with a plethora of economic news this week, firstly the US CPI (inflation) data is released tonight followed by the latest US Federal Reserve interest rate announcement on Wednesday night while the European Central Bank (ECB) steps up on Thursday followed by the Bank of Japan (BOJ) on Friday, if all goes according to “expectations” the ECB will be the only central bank to hike, or move for that matter, but 2023 has already thrown up plenty of surprises.
The ASX200 experienced an eventful week which included surprise rate hikes by both the RBA and Bank of Canada yet the local market ended the week down just -0.3% however it was a far more interesting week under the hood of the market as the aggressive moves by central banks plus accompanying hawkish rhetoric changed investors sentiment on the stock and sector level:
A solid end to a choppy week for the ASX that was dominated by another 25bps rate hike by the RBA. Sector rotation remains a constant with the first cracks appearing in the recent tech rally while the resource stocks found their feet and edged higher, inline with our recent commentary that tech was vulnerable and we should continue our patient transition towards commodity stocks.
The RBA surprise (kind of) rate hike and accompanying hawkish rhetoric have sent Australian 3-year bond yields to decade highs, an unlikely backdrop for a surging tech sector but we cannot argue with the tape – plus we should never forget the new world in which we live where advancing and evolving tech is reshaping business.
A choppy and ultimately negative day for the ASX where buying in Energy & Materials was more than offset by a sharp pullback in Tech, although weakness was obvious right across the sectors negatively influenced by higher interest rates.
Yesterday saw the ASX200 slip another -0.2% having opened strongly with Tuesday’s RBA rate hike appearing to take the wind out of the sails of an already tired market – over the last 2 days we have spent hours reading both local and international equity/economic research and the bulls have definitely gone into hibernation, just like a grizzly in December. Losers only marginally edged the winners on Wednesday but a pullback in the banks was enough to drag the index lower in a fairly lacklustre but evidently weak session which was characterised by an absence of buyers as opposed to aggressive selling.
The local bourse was on the front foot initially, rallying ~0.5% early in the session before caution returned, seemingly the market has lost its mojo after the RBAs hike, failing to hold on to gains. The end result from the index perspective was a small fall as the ASX200 closed on the intraday lows, but there was significant volatility on the sector front.
The ASX200 tumbled -1.2% on Tuesday with over half of the losses unfolding after the RBA’s hike – the move may have been a surprise to some but heavyweights UBS, Goldman Sachs & Deutsche Bank called it correctly with all looking for at least one more sooner rather than later. Only the Utilities Sector managed to advance yesterday while not surprisingly the Consumer Discretionary Sector was worst on the ground falling -2.2%. Our stance toward the ASX hasn’t deviated over recent months and considering the index continues to tread water we feel on point until further notice.
The local market was on the back foot for most of the session today thanks to softer US markets overnight before yet another hike by the RBA resigned shares to a drop of more than 1%. The latest hike takes Australian interest rates to an 11-year high while Governor Lowe’s commentary seems to suggest he’s not done yet. Discretionary stocks took a hit as a result with a downgrade in the sector not helping the already negative market view of the space being squeezed by tighter household budgets.
Year to date we have already witnessed the Tech Sector outperform the Resources by over 20% as the strong keep getting stronger and vice versa. Over the last 12 months, we’ve seen investors almost move on mass into and out of hot stocks and sectors with the heard like mentality at times leading to crowded trades which have a habit of unwinding in dramatic fashion at some stage of the cycle, the skill is identifying when the risk/reward has stretched too far and caution is warranted e.g. MM often starts trimming positions when we believe this is the case.
