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The ASX200 finally strung together two consecutive positive days courtesy of strong performances from overseas bourses, in quick fashion the local index had bounced almost 150 points, recovering more than 40% of December’s losses in the process – it’s, unfortunately, going to be a different story this morning. Thursday’s gains were fairly broad-based with over 75% of the index rallying with only the Resources Sector surrendering a little ground. A number of the growth stocks caught our attention in the winner’s enclosure as bond yields continue to consolidate their strong advance through 2022:
The ASX continued to recover today following the mid-week dip although the ASX 200 is still down 1.81% for the month of December which doesn’t correlate well with the idea of a Christmas Rally. If the market stays down, it will be only the 8th time that has occurred in the past 29 years with the average gain in December for that period being +1.85% – a bit of work to do from here! A mixed bag from a sector perspective today with Utilities the standout while IT also played a solid supporting role. The only sector in the red was Materials.
The ASX200 has embraced the saying “what a difference a day makes” in consummate style over the last 48 hours i.e. down aggressively on Tuesday following the BoJ’s hawkish tweak on interest rate policy followed by a +1.3% recovery yesterday, the net difference being down just 18 points. The local market’s advance yesterday was broad-based with over 85% of the main board rising as the bulls again started talking up the prospects of a late Christmas rally – certainly, anything is possible as volumes start to decline. There were a few standout sector performances as the news from Japan was dismissed almost as fast as it arrived:
A volatile 24 hours across financial markets, this time yesterday the ASX had dropped 109pts and looked average at best while today’s +90pt bounce back has the bulls a little more at ease – the joys of tepid volumes before the big fella drops through the chimney…
The Bank of Japan (BOJ) shocked financial markets at 2 pm AEST when they adjusted their yield curve control program, in simple English they will allow Japan’s 10-year bond yields to rise to ~0.5% from the previous upper limit of 0.25% – at MM we all wish we could borrow money for 10-years at 0.5%, that would make a lovely present from Santa. However, at the same time, the central bank kept its short-term interest rates at minus -0.1%, significantly below the likes of Australia, Europe and the US.
Certainly, a risk-off day for stocks right across the region following the Bank of Japan’s (BoJ) move to tweak their yield curve control program where-by they’ll allow the 10-year bond yield to rise to 0.5%, up from the previous upper limit of 0.25% – hardly a blip compared to what other bond markets have experienced but big in the context of how the BoJ have previously operated.
The ASX200 put in a valiant effort yesterday considering Friday’s weakness on Wall Street, for much of the session it actually felt like we were witnessing the dawn of another “Christmas Rally” before the index ultimately closed down just -0.2% with the Real Estate Sector falling -1.1% the weakest link. Conversely, the Energy Sector again rallied solidly led by the coal names with Whitehaven (WHC) now only ~4% away from making fresh all-time highs.
A distinct holiday feel about today’s trade and while the index drifted lower, it still felt like there was a lack of sellers about, and as soon as we get a semblance of positivity from overseas markets, it’s that lack of selling that is key to any Christmas rally that might unfold.
As most readers would know last week saw central banks continue to hike interest rates with total disregard for Christmas cheer, the hikes and net hawkish rhetoric weighed on equities making a “Christmas Rally” start to feel like the proverbial pipe dream – any other time of the year and we would say no way but history tells us to never discount a run by stocks into Christmas and the year-end. Some fascinating moves unfolded on the macro level last week with very mixed messages for investors:
The ASX200 struggled under the weight of the central bank’s rate hikes and net hawkish rhetoric last week although bonds didn’t pay any attention which actually suggests to us it was more a case of stocks had run too hard, too fast from their October lows e.g. In only 2 months the ASX200 surged +15%. Under the hood of the market, it was a mixed bag with strong energy and real estate stocks being more than offset by selling in the miners and healthcare names.
Most of us already know the respective moves by the major central banks over the week but the standout 3 points were as follows:
