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This week saw the US CPI print come in lower than expected turning financial markets on their head, suddenly “disinflation” became the new buzzword on Wall Street with US inflation plumbing its lowest level since March 2021 and US 2-year yields falling over 0.5% from last week’s high. Equities embraced the news with the ASX200 rallying +3.7% to its best weekly close since April with interest rate sensitive stocks/sectors leading the charge whereas the defensive end of town struggled on the relative front:
The Match Out: ASX posts its best week in more than 9-months, Tech and Commodities support the rally
A weaker USD and a drop in local bond yields helped push the ASX to a 3-week high, crossing back above 7300 for the first time this financial year. Aussie 2-year bond yields fell back below 4% today for the first time in more than a month, supporting the risk-on attitude. Similar to the US market, tech was a standout today and led the sector performance for the week.
The Greenback has tumbled to fresh 15-month lows this week as a Fed pivot appears extremely close at hand, in our opinion the move has been exacerbated by the defensive positioning of many investors who sought the safety of the $US during the recent macro-economic and geopolitical uncertainty. The correlation between US bond yields and the $US is not surprisingly strong with much lower levels on the agenda if we do indeed see US 2-year bond yields back under 4%.
Inflation, at least in the US, is quickly coming under control leading to a strong rally on the local market today. The broad-based rally saw more than 90% of the ASX200 close higher today, led by a strong rally in Real Estate on a day when all sectors closed up. China trade data also printed today with both imports and exports falling more than expected with a lower trade surplus adding to the view that China will ramp up its stimulus efforts.
This week saw Megaport (MP1) surge higher following an upgrade which indicated that the company resetting strategy was working i.e. implementation of pricing & cost-out initiatives and a pivot back to a direct sales model. However, another huge factor in the stock’s move was fund managers were positioned underweight the stock and traders short hence following the news there was a dearth of sellers, to say the least!
Resilience was shown on the ASX again today, continuing the relief rally that kicked off yesterday. Commodity-linked stocks were once again the main focus with follow-through buying on the back of China’s support of their property sector. Energy was the key standout though thanks to signs that Russian production had started to slow and comments from the Saudis supporting the OPEC+ actions to stabilize oil markets. In a shift away from recent history, tech was the laggard on the local market today. All eyes will be on the US Inflation data due out at 10.30 pm tonight.
The ASX200 surged higher yesterday significantly outstripping a solid session on Wall Street, the local market ended up +1.5% with over 90% of the main board closing in positive territory. A particularly aggressive final 10 minutes saw strong buying in the SPI Futures suggesting some position covering following the volume selling witnessed over recent weeks. While all 11 sectors closed higher on the day the fact that 8% of the main board closed up more than 4% while no stocks fell by 2% really illustrates the market’s strength into tonight’s potentially pivotal CPI.
Strong resilience was shown on the local market starting on the front foot today but highlighted by consistent intra-day buying, grinding higher throughout the session to put on more than 100 points. Just 7% of the index closed lower with all sectors adding more than 0.5%. Just like the US market overnight, the small-cap index (S&P Small Ords) outperformed with a 2.14% jump today.
The ever-existent problem with catching “falling knifes” in the share market is the intrinsic reason behind why a company has been struggling i.e. history tells us that buying stocks making fresh quarterly lows leads to portfolio underperformance hence it must be recognised as a contrarian play with exposure aligned accordingly.
The ASX saw the best of it early on Monday morning, initially rallying ~0.6%, looking to recover some of last week’s losses. Banks, miners and energy sectors supported the index before traders faded the strength throughout the rest of the session. The ASX200 settled at its lowest close since late March with the only shining light being the Tech sector.
