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We are making multiple changes to the Flagship Growth Portfolio
Tuesday saw the ASX200 embrace the balanced RBA minutes advancing almost +0.9% on broad-based gains that saw only 20% of the main board close down on the day. There were a few pockets of weakness on the stock level but as we’ve been saying for weeks the path of least resistance remains on the upside even following weak seasons on overseas bourses. Further stimulus from Beijing and the local market could be testing its all-time in a matter of weeks i.e. it’s less than 4 % away now.
A surprisingly positive session for the ASX today, courtesy of the RBA minutes that showed a July 0.25% rate hike in perhaps, not a fait accompli, with the RBA still more data dependent than the market had given it credit for. Bond yields fell after the 11.30 am release, and so too did the Australian dollar and that put a bid tone under the market which built on its impressive 6-day advance now totalling ~220pts/3%, chalking up a 7-week high in the process
Insurance stocks generally like higher bond yields because they hold collected premiums in bonds garnering interest before paying out on claims as and when required i.e. higher interest rates generate higher income from these funds. Hence the dramatic move in yields over the last 12 months has been a clear tailwind for the sector’s revenue. Also, recently we have seen companies start to demonstrate their pricing power with Insurance Australia Group (IAG), which owns the well-known NRMA, hiking the cost of household insurance by +20% and car insurance by +14% – a touch more than inflation!
A rebound in the Banks and Healthcare stocks underpinned a solid start to the week with the ASX treading its own path today ahead of a public holiday (no trade) in the US tonight. Resources have been on fire so far this month, with the Material Index +7% in June to date, however, we wouldn’t be surprised to see some performance reversion in the short term, particularly if the $US finds some support – that was certainly the case today.
The ASX200 finished the shortened week on Friday up +1.8% as the influential Tech, Financial and Materials Sectors all closed up over 3%. China was the catalyst for the miners as they cut rates for the 1st time in 10 months, at MM we have been looking for the Resources Sector to trigger buy signals after analysts have become fixated on a looming recession, this may still unfold if central banks fail to balance their fight against inflation with an economic contraction but China pressing the stimulus button is a huge help for commodities and related stocks. We are bullish on the Resources Sector medium/long term and plan to increase our exposure over the coming months, as opportunities arise.
The ASX200 ended last week up +1.8% with the influential Tech, Financial and Materials Sectors all closing up over 3%, if wasn’t for a painful downgrade by heavyweight CSL Ltd the index would have been testing multi-week highs. China lit the fuse in the miners while the Fed didn’t deliver any nasty surprises after a market-friendly inflation read on Tuesday and subsequent pause on interest rates on Thursday. We’ve mentioned a few times over recent weeks that the markets positioned too bearishly, which has been illustrated by how easily stocks have shrugged off a plethora of bad news but one glimmer of hope from Beijing and the markets threatening to break out on the upside after many weeks of consolidation.
The ASX finished the shortened week on the front foot today with healthcare being the only sector to fall on Friday’s session. The index strength came on the back of gains in energy and materials as commodities caught a bid largely thanks to growing confidence in stimulus in China. Coal stocks were a notable winner in the session, continuing the rally seen this month with Newcastle Coal futures trading more than 3.5% higher today.
The ASX200 closed up +0.2% yesterday helped by a firm Banking Sector, the “Big Four” gained an average of +0.6% in a relatively quiet session which saw stocks drift from their highs following strong employment data at 11.30 am – the unemployment rate fell to 3.6% increasing expectations of another rate hike by the RBA. The strong data probably helped support the banks with the 5th pillar Macquarie Group (MQG) leading the charge gaining +2.3%.
The ASX ticked up to the highest level in more than a week on the back of strength in both mining and financials stocks early on. The advance was halted by stronger-than-expected employment data with the Australian economy adding 76k jobs in May and the unemployment rate falling to 3.6% – the strong data lifting expectations of another, if not two more hikes by the RBA in the next few months. The index gave back all the early gains to trade marginally lower around midday, though buyers returned into the afternoon to help eke out a small gain. Healthcare was again the laggard while Tech continues to show strength.
