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The ASX200 went on a rollercoaster ride last week with major swings in both directions as volatility reigned supreme, we saw a clear week of 2 halves with a strong rally on Friday ultimately resulting in a +1% gain for the index over the 5-days – a very impressive outcome considering where stocks finished up on Wednesday. In typical fashion post Covid it was central banks which drove the significant swings in market sentiment across stocks, bond yields, FX and commodity prices.
The path of most pain continues to be up as the market pressed higher again today. Buyers were out in force throughout the session, consistently pushing the index higher throughout the day. Resources were the winners thanks to rebounds in iron ore and oil. Defensive sectors of Staples and Real Estate were firmly lower highlighting to risk on-attitude of investors.
Moving back to the markets, the RBA finally injected some optimism into stocks on Thursday after Governor Philip Lowe suggested the market needs to downgrade its projected path for rate hikes into 2023 – remember MM is looking for the Cash Rate to top out ~3% whereas the market was previously looking for a move closer to 4%. Our “best guess” is the RBA will now only hike 0.25% in October & November before giving people a reprieve in December hoping to add to the Christmas cheer i.e. the Official Rate will be 2.85% going into 2023.
A quick turnaround today as the ASX rebounded more than 100 points to earn back yesterday’s slump. Early strength came from strong leads from overseas markets before RBA Governor Lowe fired up the buyers even more after saying the ‘outsized interest rate hikes’ had likely come to an end. Tech was the main winner as a result, along with real estate and discretionary stocks, while a bounce in iron ore helped support the materials sector.
The ASX200 was simply whacked on Wednesday closing down almost 100-points on fairly broad based selling which saw over 70% of stocks close in the red, losses were led by the influential resources and financials names e.g. Commonwealth Bank (CBA) -2.1%, National Australia Bank (NAB) -3.1%, BHP Group (BHP) -2.7% and South32 (S32) -2.3%. We dipped our toe back into the market in the afternoon, more on those moves later, on balance we feel that Goldman Sachs might be correct with their latest piece of headline grabbing research “Goldman Strategists warn stocks yet to make “decisive” low”:
A poor session for the ASX today with weakness amongst the Energy, Utilities, & Material stocks dragging down the broader market while IT & Healthcare edged higher. That in itself tells an interesting story given bond yields traded sharply higher overnight (US 10 years +15bps) while a similar but less aggressive trend played out in Australia today (Aussie 10 years +5.5bps). Higher value IT & Healthcare generally struggle under that scenario however today they benefitted from a move out of those sectors more exposed to global growth – Energy & Materials hit by more than 2% a pop.
We are buying some stocks into weakness this afternoon across various portfolios
As I’m sure most subscribers know the RBA hiked the Official Cash rate another 0.5% yesterday afternoon making it a stratospheric rise to 2.35% from 0.1% in less than 6-months. More are now likely according to governor Philip Lowe as they attempt to quell inflation providing the local economy with a great platform to emerge stronger over the future years:
The ASX was positive / strong early considering no trade in the US overnight, a more positive session in commodities the catalyst however an 11am peak and all one way traffic from there, with another leg lower following the RBA’s decision to hike rates by another 0.50%.
On the eve of another likely 4th consecutive 0.5% interest rate hike by the RBA, the ASX200 managed to grind higher on a relatively uneventful day considering the last few weeks. The broad-based market was fairly evenly balanced but a +4% rally by the Energy Sector ably supported by a +2% advance across the resources stocks was enough to see the market close in positive territory – the main consistent on the sector level through 2022 has been the strength in the energy stocks.
