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The ASX200 slipped -0.2% yesterday on broad-based selling that saw over 65% of the main board close lower, a strong day by the Banking Sector staved off any major damage at the index level with the “Big Four” ending up an average of +1.3% – they called the overnight move in the US perfectly. After last week’s 300-point drive higher this week has started off quietly with stock moves being dominated by company news and broker up/downgrades with even the RBA minutes failing to catch investors’ attention.
A steady flow of corporate news across the ticker today to keep things interesting while the RBA minutes released at 11.30 am prompted a sharp sell-off before a grinding recovery ensued – the index closing only marginally lower.
There have been a number of major issues locally with the likes of SGR and unlisted Crown but our penchant for an inquiry in Australia is arguably the main headwind – just ask the banks and aged care operators. We find it hard to imagine that Australian casinos are the only premises used by organised crime to launder funds and we question if the optimum course of action is for large fines to vanish into the government’s coffers while directors who received large bonuses along the way simply walk away untarnished into their next role.
A tentative start to the trading week from an index perspective, although there were a few landmines at the stock level, signs of what could be ahead as we approach FY23 results season perhaps.
MM is taking profits on REA Group (REA) and selling Walt Disney (DIS US) for a loss.
Last week saw the US yield curve remain around levels not seen for 40 years with the 2-Years closing 0.93% above the 10s, traders are still pricing further hikes by the Fed (just fewer) and a likely recession thereafter. However, we believe the economic pessimism has become stretched and the yield curve will move back towards parity over the next 6-12 months which suggests if we do see a recession it will be shallow in nature.
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.
