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Local shares were soft to start the week as unrest in China hit sentiment for growth assets. Commodity-linked sectors were the hardest hit given the concerns around the world’s biggest economy, though energy was particularly weak on the back of ongoing discussions around capping Russian oil prices.
Last week was steady as she goes with US markets enjoying a shortened week courtesy of the Thanksgiving Holiday, the main point of interest to MM was the softening of rhetoric from the Fed in their latest minutes:
Fed officials expect to switch to smaller interest rate hikes “soon” – perhaps only a 0.5% move in January after the previous four consecutive 0.75% hikes.
Officials are becoming concerned about the impact on the economy after 2-year bond yields have rallied from basically zero to close to 5% in around 18 months.
As most subscribers know rising bond yields have weighed very heavily on the growth of stocks, with tech front and centre, the problem is term deposits are now yielding more than the S&P500 hence investors need to be confident capital gains are likely moving forward, otherwise, why would they take on the added risk. Over the last 6 months, every time the market became vaguely optimistic around peak inflation/interest rates Fed officials took an almost sledgehammer approach to reiterate their hawkish stance towards reigning in inflation, but in the last week we’ve finally seen some real glimmers of hope that they will ease off sooner rather than later.
The local index enjoyed another strong week as we approach the end of November, the ASX200 finally closed up just over 100 points courtesy of solid performances from the banks, energy, insurance, and major miners. In a comparatively uneventful 5 days, the two areas that caught our attention were both on the wrong side of the ledger, the previously high-flying coal, and ESG names, which are ironically diametrically opposed when it comes to the environment. We like both sectors into weakness which is illustrated by our recent purchases of WHC & NHC but as some performance reversion creeps into the market we can’t discount this recent downside trend having more legs, especially in the crowded ESG stocks:
A quiet session for the ASX to end the week, closing higher for the fourth consecutive session to finish at the highest level since May. Most sectors were in the green to round out the week, only commodity-linked sectors of Materials & Energy were weaker, driven by a weaker USD. The best was seen by Utilities while Real Estate and Consumer Discretionary were also up by more than 1%. The index managed to turn around a slow start, closing +107pts/+1.51% higher as all sectors rallied.
The ASX200 edged higher yesterday finally closing up 10-points after surrendering 2/3 of the day’s gains in the late afternoon, while the winners and losers were evenly matched it was a very interesting story of three commodities on the stock/sector level:
The ASX pushed up early this morning hitting a high of 7264 before sellers got the upper hand and the market sold off into the close. Gold stocks the stand out on the upside while Coal stocks fell on China stimulus & company-specific influences. All in all, a positive session however it feels like the market is losing some steam, Thanksgiving holiday in the US tonight wouldn’t have helped.
The ASX200 pushed up to test its June highs this morning, an impressive +13% rise from October’s panic low, it’s now surprisingly only 5.3% below its all-time peak – it certainly doesn’t feel like it in some pockets of the market. Heavyweights such as Commonwealth Bank (CBA) and BHP Group (BHP) have rallied strongly over recent weeks but numerous stocks remain in the “naughty corner” so far this quarter, and in 2022:
The ASX hit a 6-month high today at 7246, a rally of +834 or ~13% from the low set on the 3rd Oct at 6412. Following that day MM wrote….Yesterday’s dip by local stocks which tested this year’s 6400 lows may have been the final washout which would be ironic as it occurred on a Public Holiday for most of Australia but either way MM believes the market is looking for / has found a low and we will be higher into Christmas.
MM is trimming IGO, selling OZL & ALL
The last 12 months have thrown a spanner in the works of normal logic when we look at bond yields and leading economic bellwether, Dr. Copper, the hawkish rhetoric from the Fed is the obvious explanation but at some point in time, the usual correlation breakdown is likely to unwind. We shouldn’t forget the Fed got it very wrong when it came to timing interest rate hikes, letting inflation rip in the process, what’s to say they don’t make an equally poor call with the timing of when to back off and let the US economy breathe:
