Archives: Reports
Equities seemed to buckle under the weight of bond yields last week with all of the major indices enduring a tough week. In many developed countries including Australia, Canada, New Zealand, the UK, and the US short-dated bond yields posting fresh multi-year highs appeared to be the catalyst for the falls. At MM we believe the short-term undoing for stocks was primarily down to the market being positioned incorrectly.
Global bond yields posted fresh multi-year highs last week with the hawkish move sending stock investors running for cover. The RBA and Fed may have hit the “pause button” in recent months but bond markets, following hawkish rhetoric from central banks, now believe they will need to hike again in 2023 to arrest inflation. The major problem for equities was that investors had positioned themselves for a pivot/top sooner rather than later and even some potential for rate cuts before Christmas – we always believed economists were dreaming to hope central banks would start cutting interest rates in 2023.
The local market fell to levels not seen in 3 months today on the back of a swift turn higher in bond yields The local 10-year yield was up 15bps/~3.5% early on in the session, settling at 4.255% driving a shift away from risky assets. There was little appetite to add exposure on a Friday either, resigning the market to a ~200pt drop over the last 3 sessions. All sectors closed lower while the ASX200 closed down 2.24% for the week.
Most investors are far better buyers than sellers, no great surprise as we are all wired to be emotionally dominated by “Fear & Greed”. However common sense tells us that selling is every bit as important as buying as it plays an equal role in our alternatives at any one time i.e. buy, sell or simply do nothing.
A tough day for the Aussie market with broad-based selling knocking shares sharply low – the higher beta parts of the market felt the brunt of the risk-off attitude while the IT stocks were the only ones to finish up on the day – WiseTech (WT) +0.98% only knows one way!
In $US terms gold has corrected almost 10% from its May high as the expected path for interest rates has been pushed out i.e. rates higher for longer. After hiking rates at an unprecedented level over the last year, central banks are clearly committed to quelling inflation and they’re prepared to push the global economy into a recession if required.
A weaker session for the ASX, and with no lead from the US we were left to key off marginally softer European markets while Asian stocks also tracked lower during our time zone. Banks lost some of yesterday’s gains while property stocks also fell.
We are making changes to 2 portfolios.
The ASX200 embraced the RBA pause yesterday rallying +0.6% after the announcement on fairly broad-based buying that saw over 70% of the main board close higher, positive sentiment was compounded by a fresh bout of M&A action with Costa Group (CGC) and Austal (ASB) reminding Active Investors like ourselves that stocks will only remain undervalued for so long before the buyers surface. All local stocks need now is further economic stimulus from China and a break out to all-time highs will be back on the table, now less than 5% away.
A positive open for stocks before the index tracked lower ahead of the RBA decision on interest rates at 2.30 pm – no change to rates – the market rallied, particularly the financials and property stocks buoyed by some respite to cost of living pressures. About half of the professional forecasters had expected a hike, while interest rate futures were pricing a ~20% probability of a 0.25% move.
