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The ASX had a good crack at closing higher on the week today after a very volatile 5 sessions, only just falling short of the milestone in the end. Materials were helped by stronger commodity prices and a softer USD, both reversing moves from earlier in the week with a relief rally for global growth leverage following the US Debt ceiling vote.
The local energy sector has proven very resilient to a weak oil price which is a trigger MM often uses to enter a stock/sector i.e. we like to see markets shrugging off bad news, it’s often the sign of an inflexion point. We still believe that crude oil can dip below $US70/barrel but at this stage, we believe this is likely to provide a buying opportunity into stocks such as Woodside Energy (WDS) and Santos (STO). Medium to longer term we remain bullish on the traditional energy sector but for now, economic concerns are weighing on the likes of crude oil.
A pretty quiet day on the news flow front with the market drifting higher to recover some of yesterday’s freefall. The early session sugar hit came from the US lower house passing the debt ceiling relief bill but aside from that there was little to move markets for the first session of the new month. Tech continued its rally while Healthcare was the star performer of the sectors.
Whenever we see triple-digit losses by the ASX investors become nervous and they question if things will get significantly worse before they improve – understandable in today’s environment considering the negativity in the press. One of the macro-economic factors being cited as the reason why stocks are vulnerable at current levels is rising interest rates but at MM we would counter this with a quick look at the correlation between the ASX and the closely watched Australian 3-year bond yield.
Overseas markets underperformed overnight which weighed on the open here locally. Resources were particularly on the back foot with strength in the USD putting pressure on materials while coal also fell to 2-year lows to hold energy stocks back. The rest of the market followed suit, particularly following a higher-than-expected CPI print at 11.30 am, up 6.8% in April vs the 6.4% expected. A very weak close resigned the ASX200 to its worst day since March.
The markets love to roll out a saying, almost as much as an acronym, with “sell in May & go away” a definite favourite which is actually supported by solid statistics going back decades. However, this year while the press had a field day with stories on banking failures, looming recessions and a US debt crisis the underlying index has been quiet e.g. this month the ASX200 has traded in a noticeably tight 3.2% trading range, one of the smallest post-COVID. In other words, it may not feel like it to many subscribers but the markets are relatively quiet at the moment.
It was a pretty muted session from the index point of view today with very little to drive markets following the US observing Memorial Day today. Real Estate gave back much of yesterday’s outperformance, followed by weakness in coal stocks weighing on the Energy sector. Banks were also marginally lower today, partly offset by strength in Telcos.
In April we looked at the Australian Property Sector concluding that we felt that value was returning to the sector following its more than 30% correction since January 2022. We are all aware that whether it be residential, or commercial, that property has struggled for over a year as a result of surging interest rates i.e. not that long ago you could fix a 4-year home loan at 2%, today the same loan is well over 5%.
The local market was on the front foot early, jumping almost exactly +100pts/+1.4% on the open today following a tentative deal on the US debt ceiling. The ASX followed a positive move from the US on Friday night with US Futures adding to gains during trade this morning, however, the rally was sold into with the S&P500 Futures currently trading ~0.5% from the session highs. Tech in particular finished well of intraday highs after some profit-taking kicked in.
Markets are expected to open strongly this morning following the welcome news that a US debt default has been averted with yet another last-minute deal, these politicians have the timing of a Hollywood thriller! The announcement wasn’t serenaded with any celebratory fireworks as the tentative agreement to raise the debt ceiling over the next 2-years was clearly an uncomfortable compromise by both parties to get it before Congress for the final tick of approval.
