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A softer session for the ASX ahead of a big week of data in the US including inflation (14th) & then their much-anticipated interest rate decision (15th) where they should at least slow the pace of rate hikes (50bps expected), however as we suggested this morning, it is not just about the size of the incremental move but also the accompanying rhetoric with hints towards what Jerome Powell et al feel is likely in 2023, another…
The combination of inflation, interest rates and bond yields have driven equities post-Covid, as global uncertainty escalated through/after the pandemic the RBA and US Federal Reserve cut interest rates to basically zero which propelled risk assets, including stocks, to fresh all-time highs. Unfortunately, the inability of these central banks to take some medicine early on and start slowly raising rates from say late 2020 has seen the inflation genie escape the lamp and the rest is already history i.e. the steepest, most aggressive series of interest rate hikes in history.
The ASX200 bounced into the close on Friday but it wasn’t enough to prevent an 88-point decline over the week, the selling was broad-based across the 5 days with some strength in the gold and defensive stocks unable to halt the -1.2% dip. The local index was trading around 7320 just before the RBA’s 0.25% rate hike last week after which we expressed the view that it would take 1-2 weeks for stocks to put the move into the rear-view mirror, perhaps the buyers will return next week with Christmas only a fortnight away.
A solid end to a soft week for stocks with buying amongst the resources offsetting weakness elsewhere – the ASX 200 back up through 7200 as buyers of the ~200 point pullback emerged.
The ASX200 fell another -0.7% on Thursday dragged lower by broad-based selling and specific weakness across the influential banks and large-cap miners. A combination of the RBA hiking rates at the same time as growth data has started to soften has weighed on already nervous growth names while the China reopening play has started to lose momentum after pushing our Resources Sector significantly higher over recent weeks.
Another soft session for stocks today as the market latches on to the growth concerns permeating through the bond market – we talked about the front end of the yield curve inverting this morning – read here – and what it means for different stocks/sectors, however at a high level, it seems the often transient market is now latching onto softer economic data (GDP for example) and rhetoric implying that unemployment will be on the rise next year, in short, aggressive interest rate hikes are working and the economy is cooling, let’s hope they haven’t turned the screws too hard too fast.
We are making changes across three portfolios:
Flagship Growth: Trimming BHP & SFR
Active Income: Trimming BHP, selling AGL & APA
Emerging Companies: Trimming SFR & selling ASB
The ASX200 experienced a tough Wednesday finally closing down -0.85% after a huge sell order hit the SPI futures market after 4 pm, ultimately it doubled the day’s losses in just 10-minutes i.e. before the aggressive MOC Order (market on close) the index had clawed back from being down 70-points to being just 32-points in the red. The market was feeling reasonably constructive into 4 pm but alas big MOC sell orders are often a sign equities have lost their mojo, at least for a while, remember in Wednesday’s Portfolio Report after the RBA’s 8th consecutive….
A risk-off session today particularly on the close with some big sell-orders hitting the tape knocking the ASX 200 ~30 points in the match, tearing up what was a solid fightback from midday lows – the intra-day chart below highlighting the move well. It seems the ‘worm might have turned’ in relation to short-term sentiment, big market on close (MOC) orders are indicative of that so we’re now taking a more cautious stance, looking to reduce some market exposure after a solid run by local stocks.
The phrase “what a difference a day/week etc” makes is often used liberally but 2022 certainly qualifies when it comes to interest rates, yesterday saw the RBA hike the Official Cash Rate for a record 8 consecutive times taking us from an all-time low of 0.1% to a 10 year high above 3%. Australia has seen 2 major extremes in the blink of an eye, it feels like only yesterday when Philip Lowe said that interest rates would stay low until 2024 – he actually started the rhetoric in 2020 and continued it through much of 2021.
